TaxTMI 
TaxTMI 
2024 (7) TMI 630
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....ution Panel, Bengaluru ('Hon'ble DRP') erred in making a Transfer Pricing addition of Rs. 19,48,67,226 to the Appellant's income and thereby determining a total / income of Rs. 49,99,97,800 and the said addition being wholly unjustified are liable to be deleted. B. Transfer Pricing 2. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO in rejecting the transfer pricing analysis / study prepared by the Appellant, without appreciating that none of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied. 3. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred and the Hon'ble DRP further erred in upholding the action of the Ld. TPO in confirming the application/ incorrect application of the following filters: * Rejection of companies with different financial year ending; * Rejection of companies with export revenue less than 75% of the total revenue; * Rejection of companies with peculiar economic circumstances. ....
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....Services Private Limited * Suprawin Technologies Limited * Informed Technologies Limited * Jindal Intellicom Limited * Allsec Technologies Limited * Tata Elxsi Limited * BNR Udyog Limited * R Systems International Limited * Tata Consulting Engineers Limited 9. Without prejudice to the above grounds on rejection of functionally dissimilar comparable companies, on the facts and circumstances of the case and in contrary to law, the Ld. TPO erred by incorrectly computing the margin of following comparable companies: * Microland Limited * Jnfosys BPO Limited * SPI Technologies India Private Limited * MPS Limited 10. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred by not restricting the transfer pricing adjustment only to the associated enterprise segment and making adjustment on overall entity level. 11. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO, in considering outstanding ....
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....Rs. 30,51,30,570/-. The said return was selected for scrutiny assessment through CASS and statutory notice u/s.143(2) of I.T.At, 1961 was issued on 17.07.2017 and duly served upon the assesses. Subsequently, notices u/s.142(1) along with detailed questionnaire were issued. The assesses company has submitted its response along with the details as called for. After verification of the information filed/submitted, Assessing Officer completed the assessment. 3.1. During the course of assessment, it was observed that assessee company had entered into international transactions during the previous year relevant to A.Y. 2016-17 to an extent of Rs. 169,15,84,033/-. Hence, a reference was made to the TPO for determining Arm's length price u/s 92CA of the Act. Thereafter, the case was referred to the Transfer Pricing Officer (TPO), who passed order u/s 92CA(3) of the Act on 30.10.2019. The TPO proposed the adjustment of Rs. 19,45,87,222/- in the IT-enabled services of the tax payers international transactions and Rs. 2,80,004/- under interest on receivables outstanding u/s 92CA of the Act. Accordingly, draft assessment order u/s 143(3) r.w.s. 144C of the Act and section 92CA of the Act ha....
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.... that of assessee. It was submitted by the ld. AR that the assessee is a BPO whereas the ld. DR had submitted that the assessee is ITeS/KPO. It was submitted by both the parties that whether the assessee is ITeS / KPO / high-end BPO or simply BPO is required to be decided by the TPO. Based on the outcome, suitable comparable be selected and Transfer Pricing adjustment be carried out. 6. We have heard the rival submissions and perused the material on record on the preliminary issue agreed by both the parties mentioned hereinabove. The TPO in his order dt.30.10.2019 has classified the assessee as ITeS and Para 3 and 3.1 of the order reads as under : "3. As per the Transfer Pricing (TP) document furnished for the F.Y. 2015-16, the taxpayer company has entered into the following international transactions with its Associated Enterprises (AEs) : ASSOCIATED ENTERPRISES NATURE OF INTERNATIONAL TRANSACTIONS AMOUNT IN RS. Hyundai Motor Company Provision of ITES 1131581522 Kia Motor Corporation Provision of ITES 520852358 Hyundai Auto Ever Corporation Purchase of asset 28874264 Hyundai Motor Company Reimbursement of expenses paid 43527....
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....e of computers 2,64,56,224 Purchase of Security equipment 64,667 Annual Licence fee for software 98,95,527 Purchase of computer software 23,07,715 Reimbursement of expenses 11,08,347 4 Hyundai Motor Company, Korea Reimbursement of expenses 2,72,10,590 9.6. We have considered the rival contentions and perused the details placed on record. There is justification in assessee's contentions as the above said company is involved in multifarious activities including products and IPR rights. Consequently, it cannot be considered as functionally similar to assessee-company which is categorised as a KPO company, being in engineering business process services. The Co-ordinate Bench in the case of Exevo India Pvt. Ltd., Vs. ITO in ITA No.907/Del/2016 (AY.2011- 12) dt. 25-07-2016 (supra) has considered this comparable and excluded by stating as under: "Accentia Technologies Ltd. 4.1. Ld.TPO considered this as a comparable. Assessee objects to the compatibility of this company is due to functional incompatibility. Ld.AR submitted that this company was having supernormal profit and is engaged in providing KPO services which is ....
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....er it is observed that this company is providing services in the field of medical transcription billing and collections income from coding etc for which complete segmental information are not available. In our considered opinion this company is functionally dissimilar to that of the assessee. Accordingly we direct the Ld. TPO to exclude this company from the list of comparables". Accordingly, respectfully following the above, we direct the AO/TPO to exclude the above company from the list of comparables. ii) Eclerx Services Limited; 9.7. It was submitted that this company is a Knowledge Process Outsourcing Company and as per the annual report of the company, it is engaged in the provision of services in business units of financial services and sale and marketing support. It was also further submitted that there was an extraordinary events as a subsidiary company of Eclerx Services Limited was wound-up. It has super normal profits during the year and cannot be compared to assessee-company. It was further submitted that this company was rejected in assessee's own case for AY. 2008-09 to 2010-11 on :- 10 -: I.T.A. Nos.128 & 216 /Hyd/2016 functio....
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....pany, it was submitted that the company is functionally dissimilar as it has a diversified Knowledge Process Outsourcing Company providing services in insurance, health care, HR and accounting domains. Company also offers business excellence market research and data analytics and IT services. It was also submitted that the company is engaged in software development activities. It was also submitted that in assessee's own case in AY. 2008-09, this company was rejected by the ITAT due to the fact that it has diversified activity and further, segmental information was not available. It was also contended that the margin calculated by the TPO is incorrect and furnished a revised computation. The issue was whether the bad debts were non-operating expenses and TPO has not followed the guidelines on the issue. 9.11. We have considered the rival contentions and perused the documents placed on record. Assessee has raised the same objections before DRP which gave a finding that the engineering design services being rendered by assessee are akin to KPO services of the above company. It further considered that functional comparability need to be decided on the basis of the informa....
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....annot be compared to the assessee company. He submitted that it has diverse activities & no segmental details are available and it has high turnover of Rs. 472 crores. Further, he brought to our notice that, by referring to annual reports of this company vide page 395 of paper book, this company has acquired Agilyst Inc, USA. The extraction of the submission is reproduced below: "This year also saw us acquire Agilyst Inc, a US company providing operations and data analysis support to some of the largest cable and telecommunication companies in the world. We are very excited about this acquisition as it provides us access to new customers and services and reduces our reliance on our existing large customers. The Agilyst business model is also very similar to ours and so we see many business synergies, including opportunities for cross-selling services across our combined customer base. The acquisition also adds delivery capability in Chandigarh - now our third location after Mumbai and Pune in India, and brings an additional 1,000 people into the eClerx family". By this acquisition, the financials are not reliable. He relied on the following cases: ....
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.... the coordinate bench as above, we exclude this company as comparable. 9. Similarly, we are reproducing the relevant portion i.e., Paras 9 and 10 at page 883 and Para 32 at page 894 of the paper book in assessee's own case for A.Y. 2014-15 in ITA No.2303/Hyd/2018 which reads as under : "9. The ld Counsel for the assessee Shri H Srinivasulu submitted that the assessee is the 100% captive service provider to its AEs in R&D support services of automobile parts. He submitted that the basic designs come from the AE while the assessee uses data base of AE located outside India and also the instructions of work which come from AE to render the services of CAD & CAE. He submitted that the assessee uses CAD and CAE software to render the support services and send it back to AE and there is no patenting of intellectual property in India. Therefore, according to him, the assessee is providing only ITeS services (BPO). He further led us to the AE agreement, wherein it is seen that no software development services are provided nor were any research services provided by the assessee and the assessee is also not rendering all the services specified in the agreement, but only CAE and C....
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....nt services and research services which are mentioned at page 969 of the Paper Book. He also drew our attention to page 540 of the Paper Book, wherein in its TP study, the assessee has stated that it is primarily involved in advance R&D support services focused on project design engineering and quality enhancement and provides all back end operations like computer aided design and computer aided engineering. He also drew our attention to the profile of the company at page 544 of the Paper Book. As regards the functions performed by the assessee company to its AE, he submitted that the assessee is rendering only recruitment of technical manpower, rendering and delivering of CAD/CAE engineering services and professional and quality review of services. He also submitted that the assessee is taking risk of only foreign exchange, manpower and local and statutory risk. Therefore, all the risks and major functions are borne by the AE. He submitted that both the TPO as well as the DRP have considered the assessee as an ITeS company only and therefore, it cannot now be held to be a KPO. He also drew our attention to page 946 of the paper book which is "notes forming part of the financial st....
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....sessee. In the decisions of the ITAT where it has been held to be a comparable to the assessee, we find that ITAT has held that the services provided by the assessee company and E-Clerx Ltd are similar and that the extra-ordinary event of winding up of the subsidiary company has not been proved to have any bearing on the assessee's profits and that super normal profit may not be a basis for exclusion of this company. However, we find that the Coordinate Benches of the Tribunal nor the Revenue Officers have not brought out functions which are similar to both the companies. The decision of the ITAT for year AY 2011-12 was followed in the AY 2012-13. Therefore, we are of the opinion that these decisions cannot exactly be binding on this Tribunal for the relevant AY, where the AO/TPO have considered the assessee as an ITeS service provider and not as a KPO. Further, as pointed out by the ld Counsel for the assessee, The TPO has himself has not taken E- Clerx Ltd as a comparable for the AY 2013-14. Therefore, we direct the TPO/AO to exclude this company from the final list of comparables to the assessee." 10. From the reading of the above said three decisions of the Tribunal, it appe....