TaxTMI 
TaxTMI 
2015 (4) TMI 1359
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....y, filed its return for Assessment Year 2009-10 on 14.7.2009 declaring total income of Rs. 94,82,385 after claiming deduction of Rs. 2,29,66,429 under Section lOA of the Act. The return was processed under Section 143(1) of the Act and the case was subsequently taken up for scrutiny. A reference under Section 92CA of the Act was made by the Assessing Officer to the Transfer Pricing Officer ('TPO') in respect of the following international transactions reportedly entered into by the assessee with its Associated Enterprises ( 'AEs') for computation of the Arm's Length Price (,ALP')thereof :- S.No. Type of Transaction Amount Rs. 1. Receipt from I.T. enabled Services. 15,78,43,504 2. Reimbursement of Professional Fees 8,97,000 3. Advance given to employee of AE 5,00,000 2.2 The TPO passed an order under Section 92CA of the Act vide order Dt. 16.1.2013 making an adjustment of Rs. 1,04,14,489 to the international transactions of the assessee in I.T. Enabled Services. Subsequent to the receipt of the TPO's order under Section 92CA of the Act, the Assessing Officer passed a draft assessment order on 31.1.2013 proposing the ....
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....y erred by not serving the order under Section 92CA of the Act on the basis of which the adjustments were computed pursuant to the directions of the Hon'ble DRP there by violating the principles of natural justice. 3. On the basis of the clear directions given by the Hon'ble DRP, it is apparent that the ld. TPO has grossly erred in computing the adjustment under Section 92CA of the Act. 4. The Id. Assessing Officer has erred in initiating penalty proceedings under Section 271(1)(c) of the Act mechanically and. without recording any adequate satisfaction for such initiation. The appellant prays that each of the above grounds be considered discretely and without prejudice to each other. The appellant craves leave to add, omit or alter grounds of appeal before or during the hearing of the appeal. TRANSFER PRICING ISSUES (Ground Nos. 1 to 3) 4.1 In its T. P. Study, the assessee while conducting the comparability analysis for the international transactions with its AEs had adopted Transactional Net Margin Method ('TNMM') as the Most Appropriate Method ('MAM') using Net cost plus mark up and the Profit Level Indicator CPLI....
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....e bench of this Tribunal in the case of Mindteck (India) Ltd. in IT(TP)A No. 70/Bang/2014 dt. 21.8.2014. The learned Authorised Representative submitted that the set of comparables chosen by the TPO in the cited case (supra) are the same as those selected in the case on hand for A.Y. 2009-10 and in view of this that the assessee relies on the decision of the co-ordinate bench in the cited case. The learned Authorised Representative. further submitted that he does not press the grounds related to the 'Turnover Filter' and that the assessee proposes to raise the following issues before us for consideration of the Bench :- i. Foreign exchange profit / loss to be part of operating revenue while computing the margin of the assessee. ii. Donation to be excluded from operating revenue while computing the margin of the assessee. iii. Exclusion of two comparables from the TPO's final set of comparables, namely, (1) Accentia Technologies Ltd. and (2) eClerx Services Ltd. on grounds of functional dis-similarity by relying on the decision of the co-ordinate bench of ITAT, Bangalore in the case of Mindteck (India) Ltd. (supra). iv. Exclusion of Co....
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....s a result of the realization of the consideration for rendering software development services. It, therefore, arises or occurs in the normal course of business and hence there is no reason why it should be excluded from determining the operating revenue while computing the margin. Consequently, following the decision of the co-ordinate bench in the case of Mindteck (India) Ltd. (supra), we hold that the operating revenue of the assessee be computed by including the foreign exchange gain. 6. Donation to be included in or excluded from Operating Revenue. 6.1 In respect of the issue raised at (ii) in para 4.4 (supra), the assessee contends that donations are not a part of normal business activities and hence it should be excluded from operating revenues. 6.2 In the preceding paragraphs, we have already expressed the view that those expenses incurred / incomes earned in the normal, course of business are to be included for determining the operating revenue while computing the margins. By the same analogy, those expenses which are not part of normal business activities should get excluded for determining the operating revenue while computing the margin. As donation is not in t....
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....determination of ALP in the case of an assessee who was providing ITES business support services for the A. Y. 2007-08. The TPO had considered Accentia Technologies Ltd. as a comparable. The DRP however held that the said company cannot be compared as a comparable owing to extra ordinary events that took place during the previous year. The Tribunal upheld the order of the DRP observing as follows:- "I.Accentia Technologies Ltd. 10. It is the submission of the assessee that this company cannot be treated as a comparable because of uncomparable financial results arising out of amalgamation in the company. In this regard, the assessee has relied upon the order of the DRPfor the assessment year 2008-09 in assessee's own case. It is seen that the DRP while considering similar objection placed by the assessee in the case of another company, viz. Mold Tek Technologies Ltd., in the proceedings relating to the assessment year 2008-09, has observed in the following manner- "17.5. In addition to the above, the Director's Report of accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools ....
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....ary of the company) with the company as approved by the shareholder in the court convened meeting held on the 25th day of April, 2009 and subsequently sanctioned by the honorable high court 'of Judicature at Mumbai vide order dt 21st August 2009 and Honorable high court of Karnataka at Bangalore vide order dt 6th February 2010, the assets and liabilities of the erstwhile company was transferred and vested in the company with effect from 1st Apr, 2008 and the scheme has been given effect to in the accounts of the year. " 34. It appears to us that the decision rendered by the Tribunal in the case of Symphony Marketing Solutions would be applicable in the present assessment year also. Accordingly, Accentia Technology Ltd is directed to be excluded from the list of comparables. " : 7.3.2 Following the above cited decision of the co-ordinate bench of this Tribunal in the case of Mindteck (India) Ltd. (supra) for A.Y. 2009-10, we also hold and direct that this company; i.e. Accentia Technologies Ltd. be excluded from the list of comparables in view of the occurrence of extra-ordinary event of the amalgamation of Accentia Technologies Ltd. with M/s. Asscent Infoserve Ltd.,....
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....lobal Ltd. 9.1 The learned Authorised Representative of the assessee contended that this company should be excluded from the final list of comparables for the following reasons :- (i) This company has outsourced a major portion of its business to sub-contractors and therefore it cannot be considered as a comparable company to the assessee, who is a service provider in the IT enabled services segment. (ii) The TPO ought to have applied the salary filter of 25% for selecting the comparables as salary is a critical cost for service providers in the ITES segment; the salary cost of Cosmic Global Ltd. being only 21.32%. (iii) This company has earned abnormal profits during this year and therefore should be excluded as a comparable .. In support of the assessee Is contentions (supra), the learned Authorised Representative placed reliance on the decisions of the ITA T, Hyderabad Bench in the cases of (1) Parexel (India) Pvt. Ltd. for Assessment Year 2009-10 (supra) and (2) Excellence Data Research (P) Ltd. for Assessment Year 2009-10 in ITA No. 159/Hyd/2014 dt. 31.7.2014. 9.2 Per contra, the learned Dept. Representative supported the action of the TPO i....
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..... 7.37 crore divided into three segments, namely, Medical transcription and consultancy services at RS. 9.90 lacs, Translation charges at Rs. 6.99 crore and Accounts BPO at Rs. 27.76 lac. The Id. AR has made out a case that outsourcing activity carried out by this company constitutes 57% of total expenses. The reason for which we are not agreeable with the Id. AR is that we have to examine the revenue of this case only from Accounts BPO segment and not on the entity level, being also from Medical transcription and Translation charges. When we are examining the results of this company from the Accounts BPO segment alone, there is no need to examine the position under other segments. The entire outsourcing is confined to Translation charges paid at Rs. 3.00 crore, which is strictly in the realm of the Translation segment, revenues from which are to the tune of Rs. 6.99 crore. If this segment of Translation is not under consideration for deciding as to whether this case is comparable or not, we cannot take recourse to the figures which are relevant for segments other than accounts BPO. Thus it is held that this case cannot be excluded on the strength of outsourcing activity, which is ....
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....t. Ltd. (supra) relied on by the assessee, has in turn relied on the decision of the ITAT, Delhi Bench in the case of Mercer Consulting (India) Ltd., in ITA No. 966/Del/2014 dt. 6.6.2014 wherein it has been specifically held that this case, cannot be excluded on the strength of outsourcing activity, which is alien to the relevant segment. The ITAT, Delhi Bench, in the said case, had specifically held that the contention that outsourcing activity constitutes 57% of the total expenses is not acceptable because the revenue of this case has to be examined from the Accounts BPO segment only and not on the entity level. It was also held that the entire outsourcing activity was confined to translation charges, which is in the realm of transaction segment and therefore the segment of Accounts BPO only needs to be considered and since the total revenues from the Accounts BPO segment at Rs. 27.76 lacs was very low, this company was removed from the list of comparables. 9.3.4 In view of the above, this company, namely, Cosmic Global Ltd., was excluded from the list of comparables in the aforesaid case, because the only comparable segment, i.e. Accounts BPO segment has low volume of sales a....