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TaxTMI 
TaxTMI 
TaxTMI 
2023 (11) TMI 1097
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....e support functions (risk free service provider) with the entrepreneurial companies and the Hon'ble Commissioner of Income Tax - Appeals [Herein after referred as The Hon'ble CIT(A)' or 'CITA)'] further erred in: 1.2 Confirming the action of the learned AO /TP0 and making an adjustment to the appellant company's total income based on the provisions of Chapter X of the Income-tax Act, 1961 ("the Act'). 2 Ground 1: Hon'ble CIT(A) and the learned AO / TPO erred in understanding the appellant company's low end back office support services 2.1 On the facts and in the circumstances of the case and in law, the learned AO / TPO erred and the Hon'ble CIT(A) further erred in understanding the low end back office support services (risk free service provider) provided by the appellant to its associated enterprise. 3 Ground 2: Learned AO TPO erred in non-considering the fact that there is no shifting of profit outside India 3.1 The learned AO TPO erred in ignoring the fact that IMS US undertakes all the entrepreneurial risks and has also incurred loss on a consolidated level for F.Y 2006-07 (December 31, 2006 and December 31, 2007). However....
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....ce provider) and as a consequence erroneously compared the appellant company's margins with the following high end entrepreneurial companies: Sr. No. Name of the Company 1 Caliber Point Business Solutions Limited (Seg) 2 Eclerx Services Limited 3 HCL Comnet Systems (Seg) 4 Informed Technologies India Limited 5 Mold-Tek Technologies Limited (Seg) 6.2 The learned AO / TPO and the Hon'ble CIT(A) erred in ignoring the fact that more than 85 per cent employees of the appellant company's were graduates and below. Thus, by no stretch the appellant company is engaged in providing high end services. 7 Ground 6: Hon'ble CIT(A) erred in confirming the action of learned AO TPO in disregarding the multiple year data 7.1 On the facts and in the circumstances of the case and in law, the learned AO /TP0 erred and the Hon'ble CIT(A) further erred in upholding / confirming the action of the learned Assessing Officer ('A.O.' for short) /TPO in rejecting the contention of the appellant to compute the margin of the alleged comparable companies based on multiple year financial data. 3. The additional grounds of appeal raised by the assessee dated 1....
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....g Officer ('A.O.' for short) made a reference to the Transfer Pricing Officer ('TPO' for short) u/s. 92CA(1) who vide order dated 27.10.2010 passed u/s. 92CA(3) of the Act proposed an adjustment of Rs. 4,56,50,117/-. The A.O. then passed the draft assessment order dated 06.12.2010 u/s. 143(3) r.w.s. 144C of the Act after duly considering the submission of the assessee and made an adjustment of Rs. 4,56,50,117/-. The assessee made a submission to the A.O. that it had opted to exercise its option to appeal to the ld. CIT(A) against the impugned addition and not processed before the learned Dispute Resolution Panel ('ld. DRP' for short). Therefore, final assessment order was passed on 22.02.2011. 6. The assessee was in appeal before the ld. CIT(A). 7. The ld. CIT(A) has partly allowed the appeal filed by the assessee for which both the Revenue and the assessee are in appeal before us, challenging the impugned order of the ld. CIT(A). 8. The assessee has raised the additional ground, wherein the assessment order passed u/s. 143(3) r.w.s. 144C(3) of the Act challenged on the ground that the A.O. has failed to comply with the mandatory provision of section 144C....
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....sessee had bench marked its international transaction by applying transactional net margin method (TNMM) which method was also adopted by the ld. TPO for determining the ALP. The ld. A.O./TPO determined the total income by making transfer pricing adjustment of Rs. 4,56,50,117/- by rejecting the comparable companies considered by the assessee and had considered the other comparable companies for bench marking the said transaction for determining the ALP. The assessee had challenged the selection of comparable companies made by the TPO namely Eclerx Services Ltd. and Mold Tek Technologies Ltd. which according to the assessee has been decided in favour of the assessee by various decisions of the Tribunal and the Hon'ble High Courts. The Revenue, on the other hand, had challenged the order of the ld. CIT(A) in rejecting some of the comparables selected by the ld. TPO. On this background, the assessee vide submission dated 18.02.2014 had raised the additional ground challenging the validity of the order. On perusal of the records, it is evident that the ld. A.O. while passing the draft assessment order dated 06.12.2010 had issued a notice of demand u/s. 156 and the penalty notice u/....
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....fied period from the assessee. As per the provisions of the Act, the draft assessment order in no way culminates to arriving at the demand and also the levy of penalty. It can be inferred from the act of the A.O. in issuing the demand notice along with the draft assessment order that the demand got crystalised on passing of the draft assessment order thereby converting the draft assessment order to be the final assessment order passed by the A.O. The intention of the legislature is clear where it has proposed a draft assessment order for the purpose to show cause the assessee whether he accepts or objects to the proposed addition. The assessee has placed reliance on the decision of the Tribunal in the case of Aker Powergas P. Ltd. (supra), wherein the Tribunal by placing reliance on the decision of the Pune Bench of the Tribunal in the case of Atlas Copco India Ltd. v/s. DCIT [ITA No. 649/ Pun/2013 and 1726/ Pun/ 2014 alongwith CO Nos. 34 & 35/ Pun/2019] has held that on identical facts, the assessment order was held to be null and void. The ld. AR had also relied on a plethora of cases wherein the said proposition has been reiterated by various benches of the Tribunal and also in ....
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....n characterizing the low end back-office services which are in the nature of business process outsourcing' as high-end knowledge process outsourcing". 1.4 The Appellant submits that the Assessing Officer be directed to delete the upward adjustment of Rs. 5,56,38,789/- made by him to the Appellant's total income and to re-compute its total income and tax liability thereon accordingly. 2.0 General 2.1. The learned AO erred in initiating penalty proceedings under section 271(1)(c) of the Act. 17. The brief facts are that the assessee filed its return of income dated 14.10.2010, declaring total income at Rs. 2,03,428/-. The assessee's case was selected for scrutiny. The A.O. made reference to the TPO u/s. 92CA(1) of the Act for the following international transaction entered into by the assessee with its AE: Sr. No. Description of the transactions Value (Rs.) AY 2010-11 AY 2009-10 Method used 1 Provision of Documentation and Presentation services 60,64,54,221 57,00,82,975 TNMM 2 Reimbursement - 18,403 CUP 18. The operating profit and operating cost accounts of the assessee has been worked out as following : Profit and loss account Year en....
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....Eclerx Services Limited 55.94% 3 Accentia Technlogies Ltd. 43.07% 4 Cosmic Global Limited 16.59% 5 Nittany Outsourcing Services Pvt. Ltd. 19.52% Average 28.99% 21. The ld. TPO vide order dated 30.11.2013 passed u/s. 92CA(3) of the Act made an upward adjustment to the arms length price by Rs. 7,98,64,207/- in relation to the international transaction entered into by the assessee company with its AE. The ld. A.O. then passed a draft assessment order dated 28.01.2014 u/s. 144C(1) of the Act where the proposed addition of Rs. 7,98,64,207/- was made on account of adjustment in arms length price of the international transaction. The assessee filed its objection before the Hon'ble DRP who vide direction dated 07.10.2014 u/s. 144C(5) of the Act was passed after disposing off the objections raised by the assessee, wherein the adjustment made by the A.O. was confirmed. The A.O. then passed the final assessment order dated 28.11.2014 in pursuance to the direction of the ld. DRP by making a transfer pricing adjustments of Rs. 5,56,38,78l9/- after following the direction of the DRP and recalculations made by the ld. TPO. 22. The assessee is in appeal before us, cha....
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....ench marking the international transaction of the assessee. The assessee further stated that Eclerx Services Ltd. was also into financial services along with the sales and marketing services and has not given separate segmental information. The assessee has relied on the decision of B C Management Services P. Ltd. vs. DCIT [2017] 83 taxmann.com 346 (Del-Trib), which was upheld by the Hon'ble Delhi High Court and had also relied on the decision of the Delhi Tribunal in the case of Agilent Technologies (International) Private Limited (Supra) wherein it was held that the comparables with different business model and no segmental business available, was to be rejected. The ld. AR had placed reliance on the decision of the co-ordinate bench in assessee's case for A.Y. 2011-12, wherein Eclerx Services Ltd. has been held to be not a comparable for the reason that it was functionally different from that of the assessee company. 26. The assessee contended that if Eclerx Services Ltd. was rejected as comparable then the assessee's margin would be at arms length. The relevant extract of the said decision is cited hereunder for ease of ready reference: 16. We have heard the rival submission....
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.... has excluded M/s. Coral Hub Ltd. from the list of comparable after rendering a finding of fact that activities undertaken by Coral Hub Ltd. are not comparable to that engaged by the Respondent-Assessee. It was found as a fact by the Tribunal that M/s. Coral Hub Ltd. is engaged in ITES particularly selling and purchasing of products and goods whereas the Respondent-Assessee is engaged in e- learning and content development activity. Besides, the Tribunal has recorded finding of fact that business model adopted by M/s . Coral Hub Ltd. was different in-as-much as it outsources its work to sub- vendors as against the Respondent-Assessee carrying out its activities in-house. (Underlining provided by us ) (b) The grievance of the Revenue is that both the Coral Hub Ltd. as well as the Respondent-Assessee are in the field of Information Technology Enabled Services. Therefore, by virtue of above fact, they become comparable. (c) It is obvious that merely because the tested party and the comparable provide ITES, they do not become comparable. The content of the services rendered by virtue of IT is to be examined before holding it to be comparable. Besides, the two are not comparable a....