TaxTMI 
TaxTMI 
2023 (7) TMI 1337
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....sessee also commenced provision of technical support services to its AE's which involves applying, maintaining and implementing computational models and software within Exxon Group. The functions, asset and risk analysis ("FAR analysis") as per the TP study of the Assessee are at pages 58 to 62 of paper book. The Assessee was characterized as 'captive service provider' that assumes limited risks. 2.1 For the subject Assessment Year ("AY") 2017-18, the Assessee e-filed its return of income on 29.11.2017 declaring the taxable income of Rs. 24,.71,00,150/-. The return filed by the Assessee was processed under section 143(1) of the was selected for scrutiny assessment under CASS. 2.2 During AY 2017-18, the Assessee has the following international transactions with its AE: International transaction Received / Receivable Paid / Payable BPO services 252,19,09,071 Technical Support Services 5,21,94,845 Shared services availed 26,15,49,163 Reimbursement of expenses 53,11,04,921 Unbilled revenue 47,00,40,927 Availing of services 3,40,37,129 Trade receivable 4,....
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....he TP Officer thereafter applied certain filters and selected 13 comparable companies in ITES segment which included 3 comparables from the TO study of the Assessee while 10 new comparables were introduced by the TP Officer. The list of the final set of comparables selected by the TP Officer are at pages 45-46 of TP order. 3.5 The TP Officer in selecting the said comparables applied the following filters. S No Filters used for ITES segment 1. Use of current year data 2. Companies having different FY ending (i,e not 31.03.2017) or data of the company does not fall within 12 month period ie, 01.04.2016 to 31.03.2017, were rejected 3. Companies whose income was less than Rs 1 crore were excluded 4. Companies whose ITES income was less than 75 percent of the total operating revenues were excluded 5. Companies who have more than 25 percent related party transactions were excluded 6. Companies who have export sales less than 75 percent of the sales were excluded 7. Companies with employee cost less than 25 percent of turnover were excluded 3.6 The TP Officer determined the 35th to 65''' percentile at 22.37% to 27.41% with ....
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....the Dispute Resolution Panel ("DRP"). AS PER 154 ORDER OF TP OFFICER: 3.11 The TP Officer revised his order passed under section 92CA of the Act by passing the order dated 07.10.2021 under section 154 of the Act. The TP Officer initiated rectification for the reason that the weighted average margin of the comparable Infosys BPM Ltd was incorrectly considered at 24.37% against the weighted average margin of 24.68% and the same had resulted in short computation of TP adjustment of Rs. 77,30,000/- with tax effect of Rs. 26,76,402/-. The TP Officer accordingly modified the TP adjustment of Rs. 41,52,50,000/-determined in the order passed under section 92CA of the Act to Rs. 42,29,80,000/-as per the 154 order. Note: The Assessee submits that the AO has not revised his DAO pursuant to the 154 order passes by the TP Officer. The Assessee further submits that TP Officer has considered the margin of Infosys BPM Ltd as determined in the 154 order, while giving effect to the directions of the DRP. AS PER HON'BLE DRP: 3.12 The DRP rejected the ground of the Assessee challenging the application of certain filters by the TP Officer. The DRP also rejec....
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....justment of Rs. 42,29,80,000/- proposed in the 154 order passed by the TP Officer. 3.17 The AO has passed the FAO assessing the income of the Assessee at Rs. 38,23,50,150/- against the returned income of Rs. 24,71,00,150/-. 3.18 Aggrieved by the TP adjustment of Rs. 13,52,50,000/- made in the FAO, the Assessee has filed the present appeal before this Tribunal. 4. Ground Nos. 1 to 11 are not pressed and accordingly, these grounds are dismissed as not pressed. 5. Ground No. 12 is with regard to exclusion of following comparable companies: 12.1 Datamatics Business Solutions Ltd. 12.3 Infosys BPM Services Pvt. Ltd. 12.5 Manipal Digital Systems Pvt. Ltd. 12.6 CES Limited 12.7 SPI Technologies Pvt. Ltd. 5.1 The other comparables in this ground No. 12 are not pressed. Accordingly, dismissed as not pressed. (I) Datamatics Business Solutions Ltd. 6. The ld. A.R. submitted that Datamatics fails the export filter applied by the learned TPO, lacks segmental data and therefore, should be rejected. * Fails export earnings filter proposed to be applied by the learned TPO for the two previ....
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....parable. Therefore, the action of the TPO considering the company was upheld by the ld. DRP. 7.3 The ld. DR submitted that s regards lack of segmental information, the comparable company derives the whole revenue from sale of services and hence, there is no need of segmental reporting as per AS 17. 7.4 She submitted that the assessee contended before the ld. DRP that this comparable has incurred significant selling, marketing expenses. From the perusal of the annual report, the ld. DRP noted that the expenses on this count is only 4.57% of the total sales and which is not at all significant to affect the profitability of the comparable. Further, during the previous year 2015-16 the assessee has incurred more selling and marketing expenses amounting Rs. 326.33 lakhs as against total sales of Rs. 6314.04 lakhs whereas the company has incurred Rs. 299.46 lakhs during the previous year 2016-17 as against total sales of Rs. 6544.60 lakhs. Thus, that though expenses are less this year the revenue has slightly gone up. This shows that there is no correlation between the expenses and the revenue. The assessee has failed to establish that such differences have mate....
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....ed Support Services to its associated enterprises and the arms length price computed by the assessee was accepted by the revenue in A.Y. 2005 - 06 and A.Y. 2006-07. The same was also upheld by the ITAT for assessment year 2007 - 08. For the current assessment year, the Transfer Pricing Officer characterized the assessee's functions as knowledge process outsourcing KPO. Thereafter, the Transfer Pricing officer made general comments on the selection systems adopted by the assessee. He proceeded to reject the same. He did not specify as to which of the comparables is being rejected for which specific reasons thereof. Thereafter, the transfer pricing officer mentioned his own criteria and proceeded to select comparables and accordingly made the transfer pricing adjustment. 11. Upon the assessee's appeal, the ld. CIT(A) has accepted that the characterization by the transfer pricing officer of the assessee's functions as knowledge process outsourcing was not correct. Thereafter, the ld. CIT(A) contradicted himself by stating that the functions of the assessee are in alignment with the knowledge process outsourcing comparable dealt with by the transfer pricing officer....
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....es, functional aspects, business environment, risks and quality of human resource employed are materially different; and therefore, benchmarking international transactions on basis of comparison of PLI of high-end KPO service providers with PLI of Voice Call Centers, would be unreliable. Further, Mumbai Tribunal in Wills Processing Services (India) Ltd. vs. ACIT (supra) on considering similar contentions excluded this comparable. 38. The Id. AR submitted as we recorded earlier that Coral Hubs Ltd. was outsourcing its significant part of its operation as evident from its low employee cost and have substantial different business model compared to assessee and prayed for exclusion. The ld. DR has supported the inclusion. The TPO while making benchmarking taking his view that this comparable company is in the business of IT enabled services to overseas markets and included in the list of comparable. The Id. CIT(A) confirmed the action of TPO holding that the TPO conducting benchmarking after calling information under section 133(6) and is benchmarking analysis are correct. We have noted that, though the Id. AR has relied upon a number of decisions of Tribunal/co-ordin....
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..... Hence, in the background of aforesaid, we hold that following comparable are to be rejected: * Eclerx Services Ltd. * Vishal Information Technologies Ltd * Crossdomain Solutions * Datamatics Financial Services." 7.1 Accordingly, we direct the AO to exclude this company M/s. Datamatics Business Solutions Ltd. from the list of comparables as this company is a KPO company and not comparable to assessee company." 8.1 In view of the above, we direct the AO/TPO to exclude this company Datamatics Business Solutions Ltd. from the list of comparables. (II) Infosys BPM Services Pvt. Ltd.: 9. The ld. A.R. submitted that Infosys BPO Limited should be rejected as a comparable company as this company is functionally different and therefore ought to be rejected. Further, Infosys BPO had presence of intangibles, brand value, subcontracting expenses as compared to the Assessee who did not possess the same. * Functionally dissimilar - business process management * Ownership of intangible assets & IPs * Brand Value/ Marketing expenses * Consultancy expenses in the nature of Sub-contracting charges 10. The l....
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....n that the two transactions are necessarily identical, but that either none of the differences between them could materially affect the arm's length price or, where such material differences exist, then reasonably accurate adjustments can be made to eliminate their effect. It is important to note that the type and attributes of the comparables available in a given situation typically determine the most appropriate transfer pricing method. In general, closely comparable products/services are required if the comparable uncontrolled price ('CUP') method is used for arms' length pricing; the resale price, cost-plus methods generally require a lesser degree of products or services comparability and may be appropriate if functional comparables are available. The TNMM requires only broad functional and product/services comparability. In many instances, it will be possible to use 'imperfect' comparables, e.g., comparables from another industry sector, possibly adjusted to eliminate or reduce the differences between them and the controlled transaction.' 10.2 Reliance was also placed in the case of PinoBisazza Glass Pvt. Ltd. Vs. ACIT C-5, Ahmedabad 2005-06 & 2....
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....e opinion that this has been considered in the case of Global E:Business Operations Pvt. Ltd. by this Tribunal for the AY 2017-18 in IT(TP)A No. 174/Bang/2022 dated 16.11.2022, wherein held as under: 12.1.20 We have heard the rival submissions and perused the materials available on record. We have considered the arguments of both parties. In the assessment year 2016-17, in the assessee's own case in IT(TP)A No. 212/Bang/2021 dated 27.9.2022, the Tribunal has considered this company as not comparable wherein held as under: "10. As mentioned earlier, the limited submission of the assessee before the Tribunal as per ground 1.12 is seeking exclusion of three companies from the list of comparable companies, namely, (i) Infosys BPO Limited, (ii) SPI Technologies India Private Limited, and (iii) Eclerx Services Limited. We find in the case of assessee's group company namely EIT Services India Pvt. Ltd. v. DCIT (supra), the above three companies were excluded from the list of comparables on account of functional dissimilarities. We find that profile of the assessee in the instant case and that of the assessee in case of EIT services India Pvt. Ltd. are identical....
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.... is no requirement that the comparables should render the same or identical services. It would be sufficient, if the services fall under the broad industry segment ITES. In this regard the DRP relied on the Bangalore Tribunal decision in the case of GE India Technology Centre (P.) Ltd. v. Dy. 13. DIT [2013] 30 taxmann.com 249/141 ITD 245 and other decisions wherein it was observed that TNMM requires only broad comparability. 14. The contention of the assessee that Infosys BPO has various Revenue Models and its revenues are generated principally on time and material basis, transaction basis and fixed price contracts and therefore, it should not be compared with the assessee, the DRP observed that as the assessed failed to demonstrate as to how the different methods of billing would affect the Functional comparability or impact the profitability. Unless the same is demonstrated with credible evidence, it remains a theoretical argument without any backing with facts and figures and hence rejected it. 15. The assessee pointed out that this company has reported an amount of Rs. 136 crore as 'cost of Technical sub-contractors' which constitutes abo....
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....in view of the discussions held above, all the grounds raised by the assessee were rejected and the action of the AO/TPO was upheld by the DRP. 20. We have heard both the parties and perused the material on record. This comparable has been considered as not comparable in SwissRe Global Business Solutions India (P.) Ltd. v. Dy. CIT [2020] 116 taxmann.com 716 (Bang. - Trib.) wherein it was observed as under :- "We have perused submissions advanced by both sides in light of records placed before us. We note that this company is providing services in various areas of sourcing and procurement, customer services, finance and accounting legal process outsourcing, sales and fulfilment, analytics, business platforms, business transformation services, human resource outsourcing and technology solution optimisation. It is noted that this comparable also provides services in financial services and insurance, manufacturing, energy utilities communications and services and retail, consumer packaged foods, logistics and life services. Further in the annual report it has been mentioned that this comparable provides services that are different from routine back-office services. Th....
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....in assessee's own case ADP (P.) Ltd. (supra) has excluded this company as comparable by observing as under: '38. Having regard to the rival contentions and the material on record, we find we find that the Co-ordinate Bench of this Tribunal in the assessee's own case not only for the A.Ys 2009-10 for the A.Y 201011 has also considered this issue at Paras 6 to 9 in ITA No. 221/Hyd/2015 which reads as under: "6. The TPO has selected many comparables and among them M/s. Infosys BPO Ltd., TCS E-serve Ltd., and Eclerx Services Ltd., were objected to on the reason of high turnover and functionally different. With reference to Infosys BPO, the objection was that the said company renders vide array of services and has high brand value and turnover is also very high. With reference to TCS E-serve Ltd., there was exceptional event as the company was taken over by Tata Consultancy Services in the year 2008-09 and heavy turnover is due to its takeover. Further, it was submitted that the company was functionally different as it has three different services and segmental information was not arrived. As far as E-clerx Services Ltd., it was submitted that this com....
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....ary event or exceptional circumstance there is no material placed before us by the Ld. Counsel for the assessee. Therefore, merely because the TPO in another case has held that there is an extraordinary event for which this company has to be excluded from the list of comparables, it cannot be excluded. Such claim has to be supported by evidence on record. As regards the functional dissimilarity and huge turnover and brand value is concerned, we find that this Tribunal in assessee's own case for A.Y.2009-10 while considering the comparability of the assessee with Infosys BPO Ltd., has taken note of the possession of the brand value and intangibles which influenced the financial results of this company. The Hon'ble Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd., [2013] 219 Taxman 26 (Del.), held that huge turnover companies like Infosys and Wipro cannot be considered as comparable to smaller companies like assessee therein. In the case before the Hon'ble High Court (supra), the turnover of the assessee was about Rs. 15.79 crores as against the turnover of Rs. 1016 crores of the Infosys. Considering these facts, the Hon'ble High Co....
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....y Infosys BPM Services Pvt. Ltd. from the list of comparables. (III) Manipal Digital Systems Pvt. Ltd. 12. The ld. A.R. submitted that Manipal Digital Systems Private Limited should be rejected as a comparable company as it is functionally dissimilar and ought to be rejected. Further, the Company did not disclose segmental details with respect to its back office support services activity and also incurred advertisement/ promotional expenditure. * Functionally not comparable * No segmental details are available * Advertising and sales promotion expenses 12.1 The ld. D.R. submitted that the ld. DRP in his report observed that it is crystal clear from the annual report that the principal business activity of the company is given as IT enabled services which contributes 100% turnover of the company. On perusal of the breakup of the revenue given at page 41 of the annual report, the revenue earned from IT enabled services is Rs. 23.63 crores out of total revenue of 24.34 crores which comes to around 97.08%. The other activities like pre-media work, e-distribution contributes around Rs. 0.70 crores which is a minor revenue. The assessee, base....
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.... the ld. DRP observed that disclosure as prescribed under AS 17- segment reporting is not applicable and hence, the objection on lack of segmental information is not valid and not acceptable. 12.4 The ld. DRP further observed that the assessee also contended that this comparable has incurred significant selling, marketing expense. From the perusal of the annual report, he observed that the expenses on this count is only 14.95% of the total sales and which is not at all significant to affect the profitability of the comparable. Accordingly, this plea was rejected and in view of the above, the pleas of assessee were rejected and selection of this company was upheld by the ld. DRP. 13. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this has been considered in the case of Global E:Business Operations Pvt. Ltd. by this Tribunal for the AY 2017-18 in IT(TP)A No. 174/Bang/2022 dated 16.11.2022, wherein held as under: "12.1.8 We have heard the rival submissions and perused the materials available on record. As per the annual report of the company, it is also in end-to-end cont....
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....e TPO further observed that most of the information provided by the assessee was from website and it cannot be said reliable source of information as any company while projecting itself in public domain tries to shows its diverse functioning and range of products so as to create a brand image of itself. With these observations, the contention of the assessee was rejected and the company was taken as comparable company. 10. That before the Ld. DRP, objections have been raised by the assessee which are at running Page No. 34 of the appeal memo and therein, apart from reiterating the submissions made before the TPO, the assessee has stated that as per the online advertising laws and guidelines provided by the Advertising Standard Council of India, advertisements are based on principle of truthfulness and honesty of representation and there cannot be any misleading advertisement. That further, since the audited financial statements do not provide detailed description of operations/products in which the company deals, the website can be referred to for the analysis of functions performed by the company. The Ld. DRP vide Para (c) of Page No. 67 to 70 of its order and a....
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....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 21st November 2012), the Hyderabad and Mumbai Bench of the Tribunal respectively accepted the view that a BPO service provider could not be compared with a KPO service pro....
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....h 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 feasible. Clearly, no straitjacket ....
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.... Systems Private Limited since it was chosen as comparable by him. 14. We are of the considered view on going through the order of the TPO, findings of the Ld. DRP and the various judicial pronouncements placed on record, first of all the Revenue has selected Manipal Digital Systems Private Limited as comparable to that of the assessee company based on the earning of the company from ITes. However, there is no segmental specification provided neither by the TPO nor by the Ld. DRP for the reason of such inclusion of this company in the final set of comparable companies with that of the assessee company. In the decision of the Hon'ble Delhi High Court (supra.), it is very much clear in the wide spectrum of ITes if two companies are to be comparable one has to look into the characteristic of service or business provided under ITes by them. This exercise was not done by the Department in this case. We also opine that as per Indian Council for Advertising, the online advertising has to be published on true and honest disclosure basis and therefore, when proper documentation of activities are not physically available, in such scenario, referring the website for information is co....
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....he assessee's argument that the comparable is into different activities is based on the website information. The ld. DRP observed that the assessee has raised pleas against functional comparability of the company, with reference to certain information said to be available in the company's website. At the outset, he observed that the information put in website cannot be given complete credence, as they are mere forward looking information and statements with the motive of advertisement and other promotional gains. Further, the information in website are dynamic and cannot be related to a particular period. There is no way to verify whether the said information has any relevance for the year under scrutiny or it totally related to subsequent current year developments. There is no way to verify the correctness of this information and the relevant period to which they may pertain to. Therefore, the information in the annual report which is based on audited financial statements and management reports is more reliable and authentic, for qualitative analysis of comparability. Therefore, the pleas raised based on information said to be available in the website are liable to be reje....
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....India Pvt. Ltd. 17. The ld. A.R. submitted that SPI Technologies India Pvt. Ltd. is functionally dissimilar and ought to be rejected. He further submitted that the company had presence of extraordinary events, presence of intangibles and therefore ought to be rejected. Functionally dissimilar - KPO services No segmental details are available Existence of extraordinary event Presence of intangibles 17.1 The ld. D.R. submitted that the ld. DRP in his directions observed that the assessee has relied on the website extract of this company for functional differences. The discussion on the comparability should be based on the Annual Report of the company for the relevant financial year. Having said that, the functionality of the company is analysed with reference to the annual report for F.Y. 2016-17. In page 1 and 2 of the annual report-that "Data base services including data processing & tabulation services, on-line information and data retrieval services, Electronic Data Interchange (EDI) service, web search portal content services, Code and protocol conversion services etc". All these activities are in the nature of ITES. On page 100 of the a....
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....ences and, therefore, even if there are some differences unless they materially affect the margin, the comparables could not be excluded: This is clearly provided in the Rule 10 B (3) as per which an uncontrolled transaction has to be taken as comparable to the international transaction if none of the differences between the transactions compared or the enterprises entering into such transactions are likely to materially affect the price charged, cost incurred or profit earned and even if there are material differences, the uncontrolled transaction can still be considered as comparable if reasonably accurate adjustments could be made by eliminating the material affects of such differences. 17.2 In this case as the ld. DRP pointed out earlier that difference in various segments i.e. low end to high end in ITES services is mainly on account of differences in the skill/qualification and pay structure of employees and, therefore, the main point to be considered is whether such differences between employees is going to materially affect the margin of the comparables. On the basis of billing rates / skills no conclusion could be drawn that margins in different segments of ITES service....
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....mation is not valid and not acceptable by the ld. DRP. 17.6 The ld. DRP further observed that the amalgamation is of a wholly owned subsidiary. At page no 120 of the Annual Report F.Y. 2015-16 that "Laser Words Private Limited provides comprehensive pre-press data processing services like typesetting, composition and copyediting to educational and professional publication houses across the globe." Therefore, the amalgamated company is also in the similar line of business and the same will not have any demonstrable effect on the financials of the company. The assessee has simply pointed to increase in revenue but has failed to bring on record any evidence to suggest that the merger has impacted the profit margin of the company. This is further evidenced in the current year information given in the annual report at page 69 that the said amalgamation happened in previous years and there is no indication of reporting of any impact on the financials due to the amalgamation. Further, as per page 23 of the annual report there is no amounts involved on the structure of the share capital as a result of the amalgamation. 17.7 The ld. DRP further observed that the assessee has also argu....
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....onal incomparability. Hence, on the same logic SPI Technologies Ltd. to be excluded." 18.1 In view of the above, we direct the AO/TPO to exclude this company SPI Technologies India Pvt. Ltd. from the list of comparables. 19. In ground No. 13 of the assessee's appeal, the assessee wants inclusion of only following comparable companies. Other comparables were not pressed. 13.1 R. Systems International Ltd. 13.4 BNR Udyog Ltd. 13.6 Bhilwara Infotechnology Ltd. (I) R Systems International Ltd.: 19.1 The ld. A.R. submitted that M/s. R Systems International Limited should be accepted as this company functionally comparable and qualifies all filters of the learned TPO and therefore should be accepted. He further submitted that the Learned TPO has erred in rejecting R Systems on the ground the company was not found in the search matrix.. Annual report was submitted before the learned TPO Functionally comparable Segmental Information Qualifies all of the filters applied by the learned TPO Different financial year ending is not a criteria or rejection 19.2 The ld. D.R. submitted that the ld. DRP obser....
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....of the 3 Financial Years, the assessee made profit. The learned Counsel placed reliance on the decision of the Bengaluru Bench of the Tribunal in the case of KBACE Technologies Pvt. Ltd., Vs. DCIT (2020) 118 taxmann.com 231 (Bengaluru) wherein it was held that for a company to be excluded on the ground that it was persistently making losses, the comparable company should have suffered losses in all the 3 previous Financial Years and even if in one Financial Year it makes a profit, then that company has to be regarded as a comparable company if it is otherwise a comparable company. In the light of the aforesaid decision and in the light of the facts brought to our notice, we are of the view that the comparability of this company has to be considered afersh by the AO/TPO in the light of the facts brought to our knowledge as above. The TPO will verify if this company suffered financial loss in all the earlier Financial Years and even if in one Financial Year, the company has made a profit, it has to be regarded as a comparable company. In view of the above, the ld AR for the assessee contended that the action of the TPO in modifying the persistent losses filter is incorrect. ....
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....ade with the entity having similar transaction. Therefore, if two transactions were to be substantially similar, the export sales should be substantially similar if not same. The amount of substantial similarity by convention is accepted as 75% export sales to total sales. In this connection, it is presumed that net margin from export sales irrespective of market it is exported to, is similar. Therefore, market differences do not make significant impact as far as export transactions are concerned. Therefore, we agree with the TPO on this filter. Moreover, export revenue filter is impliedly approved in the following cases: 1. Cisco Systems (India) P Ltd v DCIT (2014) 50 taxmann.com 280 (bang) para 27.4 Motorola Solutions Pvt Ltd (TS-240-ITAT(2014) (Del)- TP) 2. Hyundai Motors India Engg (P) Ltd vs ITO (2014) 44 taxmann.com, 34 (Hyd) para 7(x) 3. 24/7 Customer.com Pvt Ltd v DCIT (2013) 140 ITD 344 4. Genisys Integrating Systems (India) Pvt Ltd vs DCIT (2011) 64 DTR (Snag) (Trib) 225 5. Exxon Mobil company India Pvt Ltd vs DCIT /TA 8311/Mum/2010 dated 10.06.2011 21.2 The ld. DRP on perusal of the annual report observed that from disclosu....
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....e entity level he was not entitled to apply the filters at segmental level. As we have already suited if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore, the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro. Label Printing. Offset Printing and Pre press /WO. Whether the label printing and offset printing segments supplement the functions performed iii the Prepress BP° segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the Top the comparability of this company. In terms of Rule 10B(3) of the rules the profit margins of Pre-Press IIPO have to be adjusted taking into account the fact that two other segments supplement the pre-press IWO segment. If such adjustment cannot be reasonably or accurately ma e then this company has to be 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. ....
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.... that the functionality is not required to be seen at all if a particular company is not part of the search matrix.as it amounts to cherry picking. Accordingly, the plea for inclusion of this company was rejected by the ld. DRP. 24. We have heard the rival submissions and perused the materials available on record. After hearing both the parties, we are of the opinion that this has been considered in the case of Global E:Business Operations Pvt. Ltd. by this Tribunal for the AY 2017-18 in IT(TP)A No. 174/Bang/2022 dated 16.11.2022, wherein held as under: "13.4 We have heard the rival submissions and perused the materials available on record. The ld AR submitted that this comparable may go back to file of AO/TPO to verify whether it satisfies all the filters adopted by AO/TPO. We accede to the request of the ld. AR. Accordingly, these two comparables i.e. Bhilwara Infotechnology Ltd. and R. Systems International Limited are remitted to the file of AO/TPO for fresh consideration to verify whether they satisfy all the filters adopted by AO/TPO while selecting comparables. Ordered accordingly." 24.1 In view of the above order of Tribunal, taking a consistent view, we....
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....ns of the tested party and comparable companies. To work out the cost of working capital, the rate of return/interest is an important factor. The cost of working capital for the tested party and each of the comparable / companies is different. The cost would depend on the source of funds and the credit standing of the borrower. The assumption of prime lending rate as the interest rate applicable for making the working capital adjustment suffers from risks of inaccuracy. The cost of capital for MNCs is determined more by the global interest rates rather than Indian prime lending rate. There is always difference between prime lending rate of India and that of international market rate of interest. Choosing one of these rates among multiple rates available in the market is as debatable as not allowing any working capital adjustment. Any change in the interest rate in the working capital adjustment will produce significantly different results making the results highly unscientific. Even though it is possible for the comparable companies to borrow in the world market the reality is entirely different. A company with global presence has a distinct advantage in terms of credit worthiness ....
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.... impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required details from the comparable companies. If that power is not exercised to find out the truth then it is no defence to say that the Assessee has not furnished the required details and on that score deny adjustment on account of working capital differences. Regarding applying the daily balances of inventory, receivables and payables for computing working capital adjustment, the Delhi Bench of ....
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....se of the CIT (A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT (A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows: "(3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences." 18. In such a scenario there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore....