AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2024 (2) TMI 522
X X X X Extracts X X X X
X X X X Extracts X X X X
....ll these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal relating to Assessment Year 2008-09 as a lead appeal. ASSESSMENT YEAR 2008-09 ITA.No. 7603/MUM/2012 (A.Y. 2008-09) (ASSESSEE APPEAL) 4. Aggrieved with the Final Assessment order and directions of the Ld.DRP, assessee filed appeal before us raising following grounds in its appeal: - "1. determining the arm's length price of the Appellant's international transaction of provision of back end support for data analysis at Rs. 62,37,32,345 instead of Rs. 53,33,43,789 determined by the Appellant; 2. disregarding the appellant's Transfer Pricing documentation and conducting his own comparability analysis (and in this regard, obtaining the financial data of certain potential comparables using his powers under Section 133(6) of the Act) which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations; 3. requiring financial data of only the current year (FY 2007-08) of the comparable companies to be used for benchmarking the Appellant&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tings segment, the Assessee is engaged in rendering back-end support for data analysis services to its associated enterprises through the Global Analytical Centre (GAC) which is the transaction under dispute. The Assessee had undertaken, inter-alia, international transactions of provision of back-end support for data analysis services from the GAC to its associated enterprises for Rs.. 53,33,43,789/-. The Assessee adopted the Transactional Net Margin Method (TNMM') to determine the arm's length of the said international transactions. It earned a margin of operating profit to total cost (hereinafter referred to as 'margin') of 28.03% (OP/TC). In relation to this transaction, CRISIL had entered into a Master Services Agreement, dated 30 June 2004 with its associated enterprise, Standard & Poor (S&P), whereby S&P would outsource services to CRISIL in accordance with the Statement of Work (SOW). These services are provided by CRISIL based on inputs from S&P. 8. The sample copies of SOW entered into with S&P (copies placed at Page No. 245 to 288 of the Paper book and a brief snapshot of SOWs attached at Annexure 1) which demonstrates that the services provided by CRIS....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nal transaction of provision of back-end support for data analysis services. 12. Aggrieved with the above order of Transfer Pricing Officer, assessee preferred objection before Dispute Resolution Panel and filed detailed submissions. After considering the submissions of the assessee, Ld. DRP upheld the order of the Transfer Pricing Officer and affirmed the Transfer Pricing addition. 13. Aggrieved with the above directions of Ld. DRP, assessee is in appeal before us. 14. At the time of hearing, Ld.AR of the assessee brought to our notice relevant facts relating to the Transfer pricing adjustments and contended the additions proposed by the Ld. DRP. Further, Ld.AR of the assessee filed its written submissions in support of his contentions, for the sake of clarity it is reproduced below: - "3.2 At the outset, the Appellant wishes to submit that the TPO/DRP have erred in determining the nature of Appellant's functions by placing reliance on certain ad-hoc information available in the public domain about CRISIL instead of the detailed documentary evidences submitted by the Appellant during the course of the proceedings before the TPO/DRP. The Appellant submits that the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... a list of queries to be sent to SAP for resolution, maintaining MIS, vending Information and data to S&P at pre- agreed intervals. These activities are comparatively simple and therefore the Appellant cannot be considered as aKPO. • Educational / Technical Qualifications: For an activity to be considered as a KPO, the number of employees holding professional/technical qualifications as a proportion of total employees would have to be large as this would probably indicate services to be in the nature of KPO. In the instant case, it is pertinent to note that a majority of the workforce (-79%) employed by the Appellant comprises of graduates, under graduates and diploma holders. Thus, the workforce is on the lower end of the technical spectrum, which further demonstrates that the Appellant is engaged in providing low-end support services and therefore cannot be characterised sa KPO 3.6. Based on the above, the Appellant has classified itself as a provider of low-end support services and not High-end services as contended by the Ld. TPO. 3.7 Without prejudice to the above, even if it is assumed that the Appellant is providing high-end services akin to a ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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." 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....respectively (refer Pg. nos. 456-457 of the paper book). 4.3. Accordingly, the said Scheme of Arrangement was given effect to in the financial statements as reflected on page no. 457 of the paperbook. Therefore, there is an extra-ordinary event during the year under consideration and for this reason as well, Mold-Tek cannot be considered as a comparable to the Appellant. 4.4 In addition to the above, Mold-Tek has also completed the acquisition of the Crossroads Detailing Inc., a USA based company during the year w.e.f. 28 April 2007. The acquisition of Crossroads Detailing Inc. USA has enabled Mold-Tek to enter into high rise buildings and commercial buildings space, which has resulted in about 56.49% growth in Financial Year 2007-08. This is an extra-ordinary event during the year under consideration and for this reason also, Mold-Tek cannot be considered as a comparable to the Appellant. (refer pg. nos. 426 and 429 of the paper book) Provision for loss on derivatives of Rs. 6.43 crores 4.5 It is also pertinent to note that the company has created a provision for loss on derivatives of Rs. 6.43 crores (approx. 36% of its total revenue) which is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pany i.e, Mold- Tek Technologies Ltd reveals that a scheme of arrangement involving Tekmen Tools Put. Ltd., ie the transferor company and Mold-Tek Technologies Ltd, the transferee company (the aforementioned company) AND the demerger between Mold- Tek Technologies Ltd, ie the demerged company (the aforesaid company) and Mold-Tek Plastics Ltd, resulting company was sanctioned by the Hon'ble High Court of Andhra Pradesh, vide its order dated 2th July, 2008. The appointed data for amalgamation and the demerger were 1st October, 2006 and 1st April, 2007, respectively, and the effective date of the scheme was 26^th August, 2008. In our considered view, pursuant to the aforesaid restructuring of the aforementioned company ie Mold-Tek Technologies Ltd., the same could not have been adopted as a comparable for benchmarking the international transactions of the assessee for the year under consideration. In fact, we find, that a similar view had been taken by the ITAT, Mumbai, in the case of Dialogic Networks (1) P. Ltd. Vs. ACIT, Circle 3(3). Mumbai [ITA No. 7280/Mum/2012, dated 27.07.2018). In the aforesaid case, the Tribunal had concluded that pursuant to the restructuring of the afor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its clients involving higher special knowledge and domain expertise in the field and, thus, the same could not be taken as a comparable to the assessee before them which was mainly involved in providing low-end services. On the basis of our aforesaid observations, we are of a strong conviction that in the backdrop of the high-end services provided by the aforementioned company i.e Mold-Tek Technologies Ltd, it could safely be held to be functionally dissimilar to the assessee company, which was providing business support services (ITCS) to its group entities across the world. Accordingly, we find ourselves to be in agreement with the claim of the Id. A.R. that in the backdrop of the functional dissimilarity also the aforementioned company ie Mold-Tek Technologies Ltd., could not have been included in the final list of the comparables for the purpose of benchmarking international transactions of the assessee company for the year under consideration. 8.3 On the basis of our aforesaid observations and the reasons given hereinabove, we are of a strong conviction that the aforesaid company i.e Mold-Tek Technologies Ltd could not have been selected as a comparable for benchmarki....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omain expertise in the field and the same cannot be taken as comparable to the assessee company which is mainly involved in providing low-end services. It may be pertinent to note here that the financial year 2007-08 was a unique year for Mold-Tek Technologies Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold- Tek Technologies Ltd. and demerger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble AP High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 1 October, 2007 and 1st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of Rs. 6.43 crores made by Mold-Tek technologies Ltd. was excluded by the A.O. treating the same as non-operating expenses whereas in the ease of Rushabh Diamonds(supra), it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. 82. ...... ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....we are not. We are a data analytics KPO service provider specializing in two business verticals- Financial Services and Retail and Manufacturing. We provide solutions that do not just reduce cost, but help our clients increase sales and reduce risk, by enhancing efficiencies and by providing valuable insights that empower better decisions.... We devise innovative and relevant solutions that address common pain points for the industry, and implement these solutions through our scalable delivery model..." 5.4 In view of the above, it can be seen that Eclerx is a Knowledge Processing Outsourcing company providing a unique blend of consulting services along with process outsourcing. It provides consulting services, devises innovative solutions for its clients and uses a scalable delivery model which makes it efficient and cheaper for them to deliver. In comparison, the Appellant is engaged only in providing support services for financial data analysis and does not do consulting services or provide complete business solutions like that of Eclerx and therefore, Eclerx is functionally different than the Appellant and therefore cannot be considered as a comparabl....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of fact borne from the record that it had during the year under consideration acquired a UK based company viz. Igentica Travel Solutions Ltd. on July, 2007. Further, as per the annual report of the aforementioned company ie Eclerx Services Ltd., the acquisition of Igentica Travel Solutions Ltd. had provided the aforementioned company with a set of 28 large customers primarily in Europe which had strengthened its presence in the said geographic region. Also, the acquisition of Igentica Travel Solutions Ltd. had given the company an entry platform in a new vertical travel and hospitality besides consolidating its position in the retail and manufacturing space. As the aforesaid company pursuant to the acquisition of Igentica Travel Solutions Ltd. on July, 2007 had witnessed an abnormal profit of 65.88% during the year under consideration, therefore, in our considered view it could not have been selected as a comparable for benchmarking the International transactions of the assessee for the year under consideration. 9.2 Further, a perusal of the financial results of the aforesaid company, Page 12 of APB, therein reveals that it had outsourced services to third party vendors w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....es, operations management and report services. Also, it was providing tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. The aforesaid company had a team dedicated to developing automation tools to support service delivery which increased productivity and allowed customers to benefit from further cost saving and output gains with better control over quality. In the backdrop of the aforesaid functional profile of the abovementioned company ie Eclerx Services Ltd, the Tribunal was of the view that as the said company was mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field, thus, it could not be compared that the assessee before them which was mainly into providing of low-end services to its group concerns. In the backdrop of the functional profile of the aforementioned company i.e Eclerx Services Ltd., we find that beyond any scope of doubt it is functionally dissimilar to the assessee before us, which is engaged in providing of business support services (ITES) to its group entities across the world. Accordingly, due to the functional dissimilarit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity, allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services Pot. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pot. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support service delivery. These software automation tools increase productivity. allowing customers to benefit from further cost saving and output gains with better control over quality, Keeping in view the nature of services rendered by M/s eClerx Services Put. Ltd. and its functional profile, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns." 11.1. We find that the assessee also cannot be said to have relatable degree of comparability because primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of d....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 15. On the other hand, Ld. DR objected to the submissions made by the assessee and submitted that Transfer Pricing Officer treated the assessee as a KPO not BPO. In this regard he brought to our notice Page No. 8 of the Transfer Pricing Officer order. Further, he submitted that assessee itself has not submitted any document substantiating that assessee is BPO and submitted that the services offered by the assessee are high-end services, it is to be treated similar to that of KPO not as BPO. He heavily relied on the orders of the lower authorities. 16. In the rejoinder, Ld.AR of the assessee objected the submissions of the Ld. DR and in support of his contentions he relied on the decision of Hon'ble Delhi High Court in the case of PCIT v. Actis Global Services Pvt. Ltd., in ITA No. 417/2016 dated 05.08.2016 (Copy of the order is placed on record). 17. Considered the rival submissions and material placed on record, we observe that the assessee a group concern of the S&P, which also does the similar nature of business in the line of financial ratings to the various establishments. S&P does the rating in the global level with the back office assistance of the assessee. The asses....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sroads Detailing Inc. USA has enabled Mold-Tek to enter into high rise buildings and commercial buildings space. Therefore, the substantial growth due to acquisition of two companies and its impact cannot be ignored while selecting the comparables. 19. Further we observe that Mold-Tek has provided derivative losses during the year and this is foreign currency exposure, which has to be considered while comparing the results before it can be selected. It is held by the coordinate bench of this tribunal in the case of Maersk Global Centres (India) (P.) Ltd. (supra) that it may be pertinent to note here that the financial year 2007-08 was a unique year for Mold-Tek Technologies Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold-Tek Technologies Ltd. and demerger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble Andhra Pradesh High Court by 15^th July, 2008 with the appointed date for amalgamation and de-merger being 01^st October, 2007 and 01^st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of Rs.. 6.43....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts own, had been so held by a coordinate bench of the Tribunal in the case of Google India Pvt. Ltd. Vs. DCIT [ITA No. 1368/Bang/2010). Considering the outsourcing of services to the extent of 20.39% of its total expenses by the aforesaid company, we are of the considered view that the said company ieEclerx Services Ltd. on the said count also could not have been adopted as a comparable for benchmarking the international transactions of the assessee for the year under consideration. 9.3 Lastly, we find that even otherwise the aforesaid comparable viz. Eclerx Services Ltd. is functionally dissimilar to the assessee company. The factum of functional dissimilarity of the aforesaid comparable had been looked into by the Special bench of the Tribunal in the case of Maersk Globle Centre (India) Put. Ltd. Vs. ACIT, Circle- 6(3), Mumbai, (ITA No. 7466/Mum/2012, dated 07.03.2014]. It was observed by the Tribunal, that a perusal of the annual report of the aforesaid company Le Eclerx Services Ltd. for the year under consideration ie F.Y.2007-08, therein revealed, that the said company was in the business of providing data analytics and data process solutions to some of the largest b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in direct the A.O to exclude the aforementioned company ie Eclerx Services Ltd. from the final list of comparables for the purpose of benchmarking the international transactions of the assessee for the year under consideration. (emphasis supplied) 21. Further, we observe that Special Bench of the Mumbai ITAT in the case of Maersk Global Centres (India) (P.) Ltd. v. ACIT [2014] 43 taxmann.com 100 (Mumbai Tribunal) for the same A.Y.2008-09 in ΙΤΑ Νο.7466/Mum/2012 dated 07.03.2014 and observed as under: - "82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analyties and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he decision is reproduced below: - "11. We have considered the submissions of both the parties and have perused the record of the case. We find that in the case of Maersk Global Centres (India) Put. Ltd., which company was, inter alia, engaged in the business as shared service centre and rendering transaction processing, data entry, reconciliation of statements, audit of shipping documents and other similar support services; and also rendering I.T. services such as process support, process optimization and technical support services, the Tribunal in para 82 of its order observed as under: "In so far as M/s eClerx Services Limited is concerned, the relevant formation is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets- financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. t is claimed to have employed over 15....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olutions Pvt Ltd v. Commissioner of Income Tax (2015) 377 ITR 533 (Del). The ITAT has extracted para 31 of the said decision where inter alia the Court pointed out that: "31......We find it difficult to accept this view as it is contrary to the fundamental rationale of determining ALP by comparing controlled transactions/entities with similar uncontrolled transactions/entities. ITeS encompasses a wide spectrum of services that use Information Technology based delivery. Such services could include rendering highly technical services by qualified technical personnel, involving advanced skills and knowledge, such as engineering, design and support. While, on the other end of the spectrum ITeS would also include voice- based call centers that render routine customer support for their clients. Clearly, characteristics of the service rendered would be dissimilar. 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s based upon record. Consequently, exclusion of E-Clerx was in order and cannot be interfered with." 25. Respectfully following the above decisions, we are inclined to direct the AO/TPO to eliminate the Eclerx from the final comparables list. Accordingly, we allow the grounds raised by the assessee in this regard. 26. In respect of restricting working capital adjustment, we observe that TPO has adopted the adhoc 2% for finalizing the WCA without assigning any reasons for adopting the above said percentage. We are inclined to remit this issue back to the file of TPO to adopt the reasonable percentage on actual basis based on the data available on record. Accordingly, this ground of appeal is allowed for statistical purpose. 27. In the result, appeal filed by the assessee is partly allowed. ASSESSMENT YEAR 2009-10 ITA No.1564/MUM/20214 (A.Y. 2009-10)(ASSESSEE APPEAL) 28. Assessee has raised following grounds in its appeal: - "1. On the facts and circumstances of the case and in law the Deputy Commissioner of Income Tax (OSD)-B(1), Mumbai ('The AO')/ Joint Commissioner of Income tax, Transfer Pricing-1(4). Mumbai (The TPO) under the direction of Disp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....llow credit of the entire amount of tax deducted at source of Rs. 25,19,64,586 claimed in the revised return of income. 5. On the facts and in the circumstances of the case and in law, the AO erred in levying interest under section 234B and 234C of the Act. The assessee prays that the AO be directed to re compute interest under section 234B and 234C of the Act as a consequence of the above grounds The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 29. At the time of hearing, Ld.AR of the assessee submitted that facts in relation to the international transactions are similar to A.Y 2008-09. Further, he submitted that Transfer Pricing Officer has also made the TP addition on similar lines as that of A.Y. 2008-09 and therefore in furtherance to the above submissions, the assessee requests for the exclusion of 2 comparables along with working capital adjustment for AY2009-10. Ld.AR of the assessee filed his written submissions challenging the directions of the Ld. DRP, for the sake o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he same AY as under consideration i.e., AY 2009-10 wherein it was held that Accentia was not a good comparable. 11.6. The relevant extract of the decision is reproduced hereunder for Your Honours' ready reference-Para no 9.2. Pg 8: "9.2. We have heard the rival submissions and perused the relevant material on record. We have also gone through the Annual report of this company for the year in question, which has been placed in the paper book. It can be noticed from page 31 of the Annual report that during the year under consideration this company completed the acquisition of 96% of M/s Oak Technologies Inc., a healthcare back-office processing company engaged in medical billing, coding and transcription activities and having substantial global work force. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. Vs. DCIT (2013) 154 TTJ (Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been taken by the Delhi Bench of the Tribunal in several cases including Ciena India Pvt. Ltd. Vs. DCIT (ITA No.3324/Del/2013) vide its order dated 23.4.2015. In view of the f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arties while adjudicating the similar issues in the AY 2008-09, we have already directed the AO/TPO to eliminate the Eclerx from the final list of comparables. 32. In respect of comparable Accentia Technologies Ltd., the ITAT Delhi Benches, in the case of Exchanging Technology Services I.P. Ltd v. DCIT (ITA No. 1897/Del/2014) for the same assessment year as under consideration i.e., AY 2009-10 held as under: - "9.2. We have heard the rival submissions and perused the relevant material on record. We have also gone through the Annual report of this company for the year in question, which has been placed in the paper book. It can be noticed from page 31 of the Annual report that during the year under consideration this company completed the acquisition of 96% of M/s Oak Technologies Inc., a healthcare back-office processing company engaged in medical billing, coding and transcription activities and having substantial global work force. The Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. Vs. DCIT (2013) 154 TTJ (Mum) 176, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has bee....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd in the circumstance of the case and in law, the Tribunal was justified in excluding Eclerx Services Ltd., from the list of comparable?" .... .... 5. Re. Question (c):- (i). The impugned order of the Tribunal has excluded M/s. Accentia Technologies Ltd., from the list of comparables to determine the ALP of the Respondent's transactions. (ii). The impugned order renders a finding of fact that the nature of activities carried out by M/s. Accentia Technologies Ltd., are different from that carried out by Respondent. M/s. Accentia Technologies Ltd., developes its own software and rendered Medical transcription services while the Respondent is providing BPO Services. Besides, the impugned order of the Tribunal held that high profit margins of M/s. Accentia Technologies Ltd., was attributable to amalgamation which took place in the previous years relevant to subject Assessment Year. Therefore, not comparable. (iii). In fact, this Court in CIT v/s. Aptara Technology Ltd., (Income Tax Appeal No. 1209 of 2015) has upheld the view of the Tribunal in not accepting the Accentia Technologies Ltd., as comparable, inter alia, on account ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stances of the case and in law, the Hon'ble DRP was correct in directing the Assessing Officer to exclude expenses incurred in foreign currency from total turnover as well, for the purpose of deduction u/s 10A by placing reliance on the decision of Gem Plus Jewellery India Ltd.?" (ii) "Whether on the facts and in the circumstances of the case and in law, the Hon'ble DRP was correct in directing the Assessing Officer to exclude expenses incurred in foreign currency from total turnover for the purpose of deduction u/s 10A, without appreciating the fact that the said decision has been contested by the Revenue before the Hon'ble Apex Court?" 41. Ld. DR brought to our notice relevant facts relating to the grounds raised by them and relied on the order of the Transfer Pricing Officer. 42. On the other hand, Ld.AR of the assessee submitted that Hon'ble Supreme Court in the case of HCL Techologies Ltd. [(2018) 404 ITR 719] has affirmed the Hon'ble Bombay High Court's decision in the case of Gem Plus Jewellery India Ltd. and held that the expenses excluded from the export turnover have to be excluded from the total turnover as well while computing deductio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 21. On the issue of expenses on technical services provided outside, we have to follow the same principle of interpretation as followed in the case of expenses of freight, telecommunication etc., otherwise the formula of calculation would be futile. Hence, in the same way, expenses incurred in foreign exchange for providing the technical services outside shall be allowed to exclude from the total turnover. 22. In view of above discussion, we are of the considered view that these instant appeals are devoid of merits and deserve to be dismissed. Accordingly, all the connected matters and interlocutory applications, if any, are disposed of with no order as to costs." 44. Respectfully following the above decision, we hold that the expenses excluded from the export turnover have to be excluded from the total turnover as well while computing deduction under section 10A of the Act. Accordingly, ground raised by the revenue is dismissed. 45. In the result, appeal filed by the revenue is dismissed. ASSESSMENT YEAR 2010-11 ITA No. 1114/MUM/2015 (A.Y. 2010-11) (ASSESSEE APPEAL) 46. Assessee has raised following grounds in its appeal : - "1. On the facts and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....isallowance of Rs. 9,33,000 made by the appellant under section 14A of the Act and in applying Rule 8D(2)(iii) of the Income-tax Rules, 1962 ('the Rules') to disallow an additional amount of Rs. 92,30,548 under section 14A of the Act. The appellant prays the additional disallowance of Rs. 92,30,548 made under section 14A of the Act is erroneous, unwarranted and be deleted. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the AO under the directions of the DRP has legally erred in computing the disallowance under section 14A of the Act read with Rule 8D(iii) of the Rules as one-half percent of the average value of total investments as against one-half percent of the average value of the investments, income from which does not or shall not form part of the total income. Accordingly, the appellant prays that the AO be directed to re-compute the disallowance under section 14A of the Act read with Rule 8D(iii) of the Rules excluding the value of the following investments made by the appellant: (a) In foreign companies; and (b) Strategic investments in the shares of its Indian subsidiaries. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ard to the Accounts of the assessee and worked out an additional disallowance under Rule 8D(2)(ii) amounting to Rs.. 92,30,548/-. In this regard, Ld.AR of the assessee submitted that Assessing Officer erred in invoking Rule 8D of the Rules, without recording his satisfaction and therefore on this ground itself, the additional disallowance made by the Assessing Officer is liable to be deleted and placed reliance on the following case law: -. • Maxopp Investments Ltd. v. CIT [(2018) 402 ITR 640 (SC)] • Wanbury Limited v. DCIT [ITA No.2587 of 2019 dated 25 April 2022 (Mumbai Tribunal)] 51. Without prejudice to the above, the Ld.AR of the assessee submitted that only those investments which have yielded exempt income during the year be considered while computing the disallowance undersection 14A of the Act r.w. Rule 8D and not the total investments as computed by the Assessing Officer. He relied on the following case law : - • ACB India Ltd. v. ACIT [(2015) 235 Taxman 22 (Delhi HC)] • ACIT v. Vireet Investments (P.) Ltd. [(2017) 58 ITR (T) 313 (Delhi Tribunal) (SB)] 52. On the other hand, Ld. DR relied on the orders of the lower....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e 8D(2)(i) of the Income Tax Rules was warranted. It is also observed that the A.O. has recorded his satisfaction that the correctness of the assessee's claim of expenses of disallowance was not to the satisfaction of the A.O., thereby entitling the A.O. to invoke the provisions of Rule 8D and the decision of the Hon'ble Apex Court in the case of Maxopp Investment Ltd. (supra) holds good in the present case. We are also of the considered opinion that the ld. CIT(A) has rightly held that the assessee has not made bifurcation of the expenses claimed under 'other expenses' and in case of which the A.O. had to invoke Rule 8D of the Income Tax Rules. The suo moto disallowance of the assessee does not disentitle the A.O. from invoking the said provision. In this regard, we find justification in the order of the ld. CIT(A) in upholding the A.O.'s action in invoking the provision of Rule 8D(2)(ii) by rejecting the assessee's contention that suo moto disallowance by the assessee warrants no further disallowances. The assessee's alternate claim is that the disallowance u/s. 14A read with Rule 8D(2)(iii) should be restricted only to those investments on which exemp....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ESSMENT YEAR 2011-12 ITA NO. 997/MUM/2016 (A.Y. 2011-12) (ASSESSEE APPEAL) 62. Assessee has raised following grounds in its appeal : - "1. On the facts and circumstances of the case and in law the Deputy Commissioner of Income Tax-9(2)(2), Mumbai (The AO)/ Joint Commissioner of Income tax, Transfer Pricing- 2(3), Mumbai (The TPO") under the direction of Dispute Resolution Panel (DRP") erred in making a transfer pricing adjustment of Rs. 9,41,36,833 to the Appellant's international transaction of back end support for financial data analysis services. 2. On the facts and circumstances of the case and in law the AO/ TPO under the direction of DRP erred in: a. upholding the action by including certain companies which were functionally not comparable; b. excluding/ rejecting certain companies which were functionally comparable; c. disregarding the Appellant's Transfer Pricing documentation and conducting his own comparability analysis which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations; d. not providing the information gathered by exercising powers vested u/s. 133(6....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Rs..3,47.03,106. 6. On the facts and in the circumstances of the case and in law, the AO erred in levying interest under section 234B of the Act. The appellant prays that the AO be directed to re-compute interest under section 234B of the Act as a consequence of the above grounds." 63. Ground Nos. 1 and 2 are similar to Ground Nos. 1 and 2 of grounds of appeal raised by the assessee for the A.Y. 2009-10, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y.2009-10 are applicable to this assessment year also. We order accordingly. 64. With regard to Ground No. 3, at the time of hearing, Ld.AR of the assessee submitted that this ground is not pressed, accordingly, the same is dismissed as not pressed. 65. With regard to Ground No. 4 which is in respect of disallowance under section 14A of the Act, we observe that this ground is similar to Ground No. 4 raised by the assessee for the A.Y. 2010-11, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y.2010-11 is applicable to this assessment year also. Accordingly, this ground is allowed for statistical purpose. 66. With regard to Ground No. 5 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... characterizing the provision of back end support for financial data analysis services to by the Appellant to its AE as that of Knowledge Process Outsourcing services ('KPO services). The Appellant prays that it be held that the services provided by the Appellant be not characterised as KPO services. 3. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding the action of the Ld. AO/Ld. TPO in: 3.1. rejecting the Transfer Pricing documentation which was maintained in good faith and with due diligence; 3.2. disregarding the search process carried out by the Appellant in Transfer Pricing documentation and conducting his own comparability analysis which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations; 3.3 not applying multiple year data for comparable companies and using data for the financial year 2011-12; 3.4 including companies in the comparability analysis which are different from the Appellant in functions, asset base and risk profile; 3.5 not considering companies similar to the Appellant in functions, asset base and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that on similar facts the Coordinate Bench in the case of Integreon (India) Pvt. Ltd., v. DCIT (supra) has excluded the comparable from the final list. The relevant ratio of the decision is reproduced below: - "8. We have heard the rival contentions and perused the record. The assessee is subsidiary of Integreon Managed Solution (Mauritius) Ltd. which holds 99% share of the assessee company. The assessee provides Information Technology enabled Services (in short "ITeS") and is mainly engaged in research support for a broad array of business challenges, including competitive intelligence, customer experience and branding customer analytics, investment and due diligence, market entry and product launch. During the year, the assessee had provided services to G Rail Research LLC (G Rail, USA). The assessee had selected Transactional Net Margin Method as the most appropriate method to benchmark its international transaction of providing ITeS services. The margins shown by the assessee were 17.11% which were compared with the mean margins of the comparables selected using current year data at 17.4%. However, the TPO rejected some of the comparables and also modified the filters....
X X X X Extracts X X X X
X X X X Extracts X X X X
....TCS e-serve Ltd. has high brand value then it cannot be selected as comparable with a concern whose brand value is less. The Ld.DR for the Revenue stressed that the global entity of which the assessee is the subsidiary has high brand value. We find no merit in the stand of the Revenue in this regard. Even on the second issue of high turnover, the said concern i.e. TCS e-Serve Ltd. cannot be selected as comparable. The total turnover of the assessee during the year is Rs. 30.92 crores. On the other hand, the turnover of the TCS e- Serve Ltd. is Rs. 1578 crores. Accordingly we hold that the TCS e-Serve Ltd. is to be excluded from the final list of comparables. Similarly, Infosys BPO Ltd. which has both brand value and high turnover of Rs. 1312 crores cannot be selected as a comparable to the assessee whose total turnover is only Rs. 31 crores (approx.). Accordingly, we hold so. 12. In view of the our excluding the two concerns i.e. TCS e-Serve Ltd. and Infosys BPO Ltd. from the final list of comparables and as per the submissions of the assessee, no other grounds of appeal needs to be adjudicated as the margins shown by the assessee would be within +/-5% in the comparables, ....