TaxTMI 
TaxTMI 
2023 (10) TMI 688
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....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 purpose of determining the arm's length price for the international transactions o....
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....l 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 which ought to be excluded. 17. On the facts and circumstances of the case and in law, the learned Panel erred in upholding the action of the Assess....
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.... 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. Brief facts of the case are as under: The Company is engaged in the business of providing software development and Information Technology ('IT') enabled services to its ultimate holding company SAP SE, intermediate holding company Ariba Inc and its group entities. It e-....
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....ologies 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% 35th Percentile 5.89% Median 8.19% 65th 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 India Private Limited 0.11% 2 Athena BPO Pvt. Ltd. 1.17% 3 HDB Financial Services Ltd. 1.54% 4 Genius Consultants Ltd. 2.83% 5 Cameo Corporate Services Ltd. 3.00% 6 Digicall Teleservices Pvt. Ltd. 3.57% 7 Sundaram Business Services Ltd. 4.84% 8 DKM Online Pvt. Ltd. 9.22% 9 One Point One Solutions Ltd. 9.69% 10 R Systems International Ltd. 10.13% 11 Bhilwara Infotechnology Ltd. 10.48% 12 Allsec Technologies Ltd. 11.96% 13 CRP Risk Management ....
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....1 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 Vitae International Accounting Services Pvt Ltd 26.35 26.63 28.75 27.35 11 A G S Health Pvt. Ltd. 30.19 36.06 14.7 27.64 12 Ultramarine & Pigment Ltd. (Seg.) 24.61 46.63 30.27 33.28 13 Access Healthcare Services Pvt. Ltd 37.37 41.27 Fails RPT filter 39.03 14 Inteq B P O Services Pvt. Ltd. 31.68 36 64 48.47 39.15 15 Motif India Infotech Pvt. Ltd. 47.89 48.99 38.8 45.72 16 Eclerx Services Limited 39.94 49.55 55.38 46.85 17 MPS Ltd 56.89 62.2 66.53 61.83 35th Percentile 20.95 Median 26.34 65th Percentile 33.28 2.3.6 The Ld.TPO thus computed the shortfall under both the segments as the proposed adjustment as under: Sl.No. Description Adjustment u/s 92CA (in Rs.) 1 SWD Segment 289,520,610 2 ITeS segment 161,641,459 Total adjustment u/s 92CA 45,11,62,068 3. On receipt of the transfer pricing order u/s. 92CA, the Ld.AO passed the draft assessment order u/s. 144C by proposing an addition in the hands of the assessee incorporating the ....
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....rd which would challenge such a right available to assessee under the Act. We have perused the submissions advanced by both sides in light of records placed before us. 5.3 We note that the additional grounds are directly connected with the main issue of disallowance and no new facts needs to be investigated for adjudicating the same. Another issues alleged by the assessee is a legal issue that does not require investigation of any facts. 5.4 Considering the submissions and respectfully following the decisions of Hon'ble Supreme Court in case of National Thermal Power Co. Ltd. Vs. CIT reported in (1998) 229 ITR 383 and Jute Corporation of India Ltd. Vs. CIT reported in 187 ITR 688, we are admitting the additional grounds raised by the assessee. Accordingly, we admit the additional grounds raised by the assessee. Accordingly, the additional grounds filed by assessee stands admitted. 6. The Ld.AR submitted that Additional Ground no. 29 raised by assessee goes to the root cause of the case and therefore needs to be adjudicated first. 6.1 In this ground the Ld.AR submitted that the final assessment order dated 16.08.2022 passed by the Ld.AO is barred by limitation as it is passe....
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....AR submitted that Additional Ground no. 30, Ground no. 11, Ground nos. 16-18 & Ground nos. 12-14 are alleged by the assessee seeking inclusion / exclusion of comparables. 8. Before we undertake the comparability analysis, it is sinequa non to understand the functions performed, assets owned and risks assumed by assessee. Functions 9. The Ld.AR submitted that Ground no. 11 and Additional Ground no. 30 are in respect of application of turnover filter by adopting the upper turnover filter of Rs. 200 crores. He submitted that the comparables alleged in ground no. 16-18 also needs to be considered by applying the turnover filter of 1 to 200 crores. The Ld.AR thus submitted that the assessee seeks exclusion of following comparables in the above grounds on failure of turnover filter: S. No. Name of the comparable Turnover (in crores) 1. Infosys BPM Services Pvt. Ltd. 3,071 2. Motif India Infotech Pvt. Ltd. 207.08 3. Eclerx Services Ltd. 1150.69 4. MPS Ltd. 220.90 9.1 He placed reliance on following decisions in support of his submissions. a) Decision of Coordinate Bench of this Tribunal in case of Altair Engineering India Pvt. Ltd. vs. ACIT in IT(TP)A No. 1025/Bang/20....
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....ly Rs. 78.66 crores. Respectfully following the above, Infosys BPM Services Pvt. Ltd., Motif India Infotech Pvt. Ltd., Eclerx Services Ltd. and MPS Ltd. stands excluded. 10. Ground nos. 12-14 raised by assessee is against inclusion of following comparables. a) Manipal Digital Systems (P.) Ltd. b) Domex E Data (P.) Ltd. c) Vitae International Accounting Services (P.) Ltd. 10.1 It is the submission of the Ld.AR that these comparables are to be excluded as they are functionally not similar with that of assessee. He has placed reliance on the following decisions where these comparables have been excluded on functional dissimilarities. a) Decision of Hon'ble Pune Tribunal in case of Rage Frameworks India (P.) Ltd. vs. ACIT in ITA No. 674/Pun/2022 for A.Y. 2018-19 b) Decision of Hon'ble Pune Tribunal in case of Credence Resource Management (P.) Ltd. vs. ACIT in ITA No. 133/Pun/2021 for A.Y. 2016-17 c) Decision of Coordinate Bench of this Tribunal in case of Altair Engineering India Pvt. Ltd. vs. ACIT in IT(TP)A No. 1025/Bang/2022 for A.Y. 2018-19 by order dated 09.01.2023. d) Decision of Hon'ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. vs. CIT reported ....
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....he following decisions, Tribunal has taken the view that companies rendering KPO services cannot be regarded as a comparable company with an ITeS company. Transperfect Solutions India Pvt. Ltd vs ACIT [[TS-497- ITAT-2022(PUN)-TP]] AY 2016-17 Schlumberger India Technology Centre (P.) 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 35. In the light of the aforesaid decisions, we are of the view that Domex E Data Pvt. Ltd., should be excluded from the list of comparable companies." 10.4 From the above observation, we note that Domex E Data (P.) Ltd. has been treated to be a KPO whereas the assessee before us is a contract service provider with limited risks. 10.5 In respect of Manipal Digital Systems (P.) Ltd., we note that Hon'ble Pune Tribunal in case of Rage Frameworks India (P.) Ltd. vs. ACIT (supra) has observed that there is no segmental specification available in the accounts of the annual report. We note that in the annual report of this comparable placed at page 1505, this comparable is providing multiple other services such as premedia services, web deve....
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....ed is functionally different from the assessee which is involved in provision of ITes services. As per the annual report of the company, the activity undertaken by the company is in the nature of pre-press activities which is not comparable to the assessee. That further in the website of the company, it is engaged in the diversified set of activities which involves graphic solutions, packaging brand management, digital publishing and digital content solutions. Therefore, the assessee submits that this company should be rejected from the final set of comparables companies." 10.7 Hon'ble Pune Tribunal has also referred to the decision of Hon'ble Delhi High Court in case of Rampgreen Solutions (P.) Ltd. vs. CIT in ITA No. 102/2015 by order dated 10.08.2015, a copy of which has been placed in the paper book case law compilation at page 1-22. We note that Hon'ble Delhi High Court in para 31 has observed that the Tribunal had held that once a service falls under the category of ITes then there is no sub classification of segment. Thus, according to the Tribunal, no differentiation could be made between the entities rendering ITes. 10.8 Hon'ble Delhi High Court rejecting such view ....
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.... Tribunal was of the view that there could be a significant overlap in their activities and it may be difficult to classify services strictly as falling under the category of either a BPO or a KPO. The Tribunal also observed that one of the key success factors of the BPO Industry is its ability to move up the value chain through KPO service offering. For the aforesaid reasons, the Special Bench of the Tribunal held that ITeS Services could not be bifurcated as BPO and KPO Services for the purpose of comparability analysis in the first instance. The Tribunal proceeded to hold that a relatively equal degree of comparability can be achieved by selecting potential comparables on a broad functional analysis at ITeS level and that the comparables so selected could be put to further test by comparing specific functions performed in the international transactions with uncontrolled transactions to attain relatively equal degree of comparability. 34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centers (India) Pvt. Ltd. (supra). As indicated above, the expression 'BPO' and 'KPO' are, plainly, understood in the sense that whereas, BPO does n....
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....on the 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/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP." 10.10 We are thus of the considered opinion that as there is no segmental details available in respect of this comparable, in order to understand the earnings of the company from ITeS segment, it cannot be considered to be a comparable with that of assessee. Respectfully following the view exp....
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....that assessee do not wish to press these grounds. Accordingly, these grounds are dismissed as not pressed. 14. Ground no. 24 - The assessee seeks inclusion of I Services India (P.) Ltd. The Ld.AR submitted that this comparable was excluded by the Ld.TPO as it was not reflected in the search matrix of the TPO. The Ld.AR submitted that this comparable needs to be included. 14.1 On the contrary, the Ld.DR relied on the orders passed by authorities below. We have perused the submissions advanced by both sides in the light of records placed before us. 14.2 We are of the opinion that merely because the comparable does not appear in the search process by the Ld.TPO, it cannot be excluded if assessee is able to file the annual reports which are verifiable. 14.3 We rely on the decision of Coordinate Bench of this Tribunal in case of Prism Networks vs. ACIT reported in (2022) 141 taxmann.com 163. 14.4 We rely on the following observation in case of Prism Networks vs. ACIT (supra) in support of this contention. "18. We heard the rival submissions. It is clear from the order of the DRP that the DRP has not considered the plea of the Assessee in proper perspective. The fact that the ....