TaxTMI 
TaxTMI 
2024 (8) TMI 1546
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.... Pricing Officer-1(1), New Delhi ("Learned TPO"). 2. The Learned CIT (A)/ Learned AO/ Learned TPO have erred in law and in facts, in not discharging the statutory onus to establish that an Appellant's case is covered under any of (a) to (d) clause of Section 92C(3) of the Act, has not been discharged by the learned TPO is bad in law and void ab-initio. 2. 3. The Learned CIT (A)/ Learned AO/ Learned TPO have erred in not appreciating that the Appellant had prepared the detailed contemporaneous Transfer Pricing documentation bona fide and in compliance with the Act and Income Tax Rules, 1962 ("the Rules") and selected uncontrolled comparable companies based on a detailed Functional Asset and Risk analysis following a methodical benchmarking process. 4. The Learned CIT (A)/ Learned AO/ Learned TPO have grossly erred by passing an order with a preoccupied mind to make an adjustment that is contrary to the facts and prejudicial to the interest of the Appellant. 5. The Learned CIT (A) has erred in determining the arm's length price ("ALP") of the international transactions to be 50 percent of the amount paid by the Appellant to its associated e....
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....in the financial results arising out of single year data 13. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting company namely C G-VAK Software and Exports Limited, identified by the Appellant using turnover of less than INR 5 Crores as a comparability criterion to sieve non comparable companies with respect to provision of back office support services. 14. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting certain companies identified by the Appellant in its TP documentation, having different accounting year than the Appellant (i.e. companies having accounting year other than March 31 2009 or data of the company does not fall within 12 month period i.e. 01-04- 2008 and 31-03-2009). 15. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting certain comparable companies identified by the Appellant on account of export revenues being less than 75% of the operating revenues with respect to provision of back office support services. 16. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by erroneously rejecting certain comparables and adding certain companies to the final set of alleged comparabl....
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.... 1.4 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in directing the exclusion of Coral Hub Ltd. and Cosmic Global Ltd. from the comparables, merely relying upon the decision in Mercer Consulting Ltd., and without considering how the facts are similar, and without considering CBDT circular SO 890 (E) dated 26.09.2000 listing products or services which could be claimed under ITES. 1.5 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in directing exclusion of E-clerx Services Ltd. and ICRA Online Ltd. from the comparables, without considering the functional profile of the assessee and these comparables. 2.1 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in allowing relief on the transfer pricing adjustment towards intra group services. 2.2 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in allowing relief on the transfer pricing adjustment towards intra group services, erroneously observing that recharacterization of the transaction and questioning expediency is not permissible, without considering that in this case,....
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....of the adjustment claimed by the assessee on account of Intra Group Services availed by the assessee. 6. Further, the Ld. CIT (A) while making the TP adjustment on account of ITEs made following exclusions in the comparable Companies. 1. E Clerx Services Ltd. 2. ICRA Online Ltd. 3. Coral Hub Ltd. 4. Cosmic Global Ltd. And directed to include of following comparableies: 1. R System International Ltd. 2. Cepha Imaging Pvt. Ltd. Aggrieved by the order of the Ld. CIT (A) both the assessee as well as the Revenue filed the present Appeal on the grounds mentioned above. 7. Ground No. 1 to 5 of the Assessee's Appeals are argumentative and general in nature which requires no adjudication. INTRA GROUP SERVICES (IGS) 8. Ground No. 5 to 11 of the Assessee are directed against order of the Ld. CIT (A) in determining the Arm's Length Price of international transaction to be 50% of the amount paid by the Assessee to its AE for receipt of Intra Group Services from its AE's and the Ground No. 2.1 to 2.3 of the Revenue are against the granting of 50% relief to the assessee on ad-hoc manner. Therefore, the abov....
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....h of the services should be furnished. b. Please state as to why a separate payment has been made for such services to the AE. 11. Please furnish details and documentary evidence of cost incurred by the AE for rendering each type of services purportedly received by the assessee company and the mark up applied, if any by the AE. Please also state as to whether the cast incurred by the AE is audited. 12. Whether AE is rendering such services to any other AEs/independent parties also. if yes the details thereof including the rates/amount charged from such AEs along with mark up if any. 13. If the AB has rendered services to more than one entity including the assessee company, then the basis of allocation amongst various entities may be furnished. Please also furnish the basis of choosing a particular allocation key. 14. If the above information is not furnished, complete in all respects, along with contemporaneous documentary evidences, the arm's length payment for these intra group services would be treated as Nil by applying CUP method. If the above information is not furnished along with contemporaneous documentary evidences and sepa....
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....o, the assessee in its submission gave detailed description, however no supporting documentary evidence was furnished by it by way of which it could establish the receipt of the service. The assessee also failed to give any basis for the cost allocation for aforementioned services. Head quarter support services In this category the assessee has claimed to have received services pertaining to Legal and Compliance Services, Security Services, Corporate Affairs and Communications Services, Strategic Planning Services and External Professional Services. These services seem to be of a very generic nature with there being nothing so unique in these services that the assessee itself may not have been able to perform. Every organization has its own performance measurement, and troubleshooting mechanisms in place. Hence, it is not understandable as to why the assessee relying on its AEs for accomplishment of such routine tasks. No evidence has been put forth to show that the AE has indeed helped the assessee in this regard. The assessee is already incurring expenditure on personnel cost and professional cost. The assessee has not demonstrated as to what kind of management services, HR....
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....ed evaluation of services, but failed to establish its authenticity and neither submitted any evidence regarding the details, how such services were received. The observation of the TPO is reproduced as under:- "18.2.2. As regards the submission of contemporaneous documentary evidence to show that these services have actually been received no documentary evidence was furnished. It merely submitted "performance score card" which basically showed the evaluation of the company on various parameters. Even for the performance score cards, no evidence was furnished regarding its authenticity. Even otherwise, this evaluation in no way reflected receipt of any of the above mentioned services. In the absence of such crucial information, the Assessees contention that specific services have been performed which were needed by the assessee and for which it did not have expertise or logistics in India does not seem tenable. Thus, the assessee has failed to substantiate that any service in this regard has actually been availed by it." 12. TPO asked the assessee why the ALP of such services cannot be treated as NIL as the assessee has failed to establish receipt of such services. Furt....
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....e payment is made for no services. It can be said on the basis of discussion made above that this arrangement is nothing but a profit shifting device. * The assessee has failed to establish any direct nexus, whatsoever, of any kind, which may help its case of having received the business from its AE as a result of services provided by the ΑΕ. * The assessee has failed to establish that its associated enterprises have specifically dedicated service centers for the assessee. The AE was not prohibited from rendering services to third parties as well. It is apparent, as has been mentioned above, that services of such nature are being performed by the assessee itself during its normal course of business. Under arm's length circumstances no independent enterprise would be willing to pay for services which are a part of its routine business performed by it and would not engage it to receive such incidental services for a payment, even at cost. * Moreover, it is not disputed that the activities for which it is paying, are also performed by itself. Under the OECD guidelines, no intra-group service should be found for activities undertaken by one ....
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....servations, we remand the matter to the file of TPO for determining the ALP afresh. Thus, the Ground No. 5 to 11 of the assessee and Ground No. 2.1 to 2.3 of the Revenue are partly allowed for statistical purpose. 16. Grounds No. 12 to 18 of the assessee are against rejection of Company selected by the Assessee CG Vak Software and Exports Ltd. identified by the Assessee. M/s CG VAK Software and Exports Ltd., 17. M/s CG VAK Software and Exports Ltd., a comparable identified by the assessee using turnover filter of less than 5 crore. The Ld. TPO has excluded the said Company on the ground that the said Companies are failing turnover filter and are engaged in providing software development services thus the same are not comparables. 18. The Ld. Counsel for the Assessee submitted that this Company operates in three segments namely software service segment, training services segment and BPO services segment. For the purposes of benchmarking of international transaction, BPO service segment has been considered as comparable to Assessee and further submitted that quantum turnover can be no reason for exclusion of a company which is otherwise comparable and relie....
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....ulars F.Y 2008-09 Foreign exchange earnings (A) 142,028,305 Sales (B) 142,028,305 Export earring/sales C=A/B 100 Percent 26. From the above computation and the extract, it is found that the said Company meets the exports earning filter as adopted by the TPO. In our considered opinion, the Ld. CIT (A) has rightly directed the A.O/TPO to verify the export earning of the Company and to include the said in the final list of the Company if Company passes the export earning filter. Thus the said findings of the CIT (A) requires no interference, accordingly, we dismiss the Ground No. 1.1 to 1.2 of the Department's Appeal. R System International Ltd. 27. The Ld. CIT (A) directed the TPO to consider R System International Ltd. in final list of comparable if quarterly audited data provided by the assessee for computing the operating profit margin for the instant Assessment Year. 28. The Ld. Departmental Representative vehemently submitted that the Ld. CIT (A) erred in directing the inclusion of R System International Ltd. as comparable without considering Rule 10B(4) of the Rules and without considering the amounts of operating profit or operating cost e....
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....d that the comparables have different financial year endings." Considering the above facts and circumstances and relying on the Judgment of the Jurisdictional High Court in the case of Mckinsey Knowledge Centre, we find no error the action of the Ld. CIT (A) in directing the TPO to consider R System International Ltd. in final list of comparables if quarterly audited data is provided by the assessee for computing the operating profit margin for the instant Assessment Year. Finding no merit in Ground No. 1.3, we dismiss the Ground No. 1.3 of the Department. CORAL HUB LTD. AND COSMIC GLOBAL LTD. 31. The Ld. CIT (A) by following relying on the order of the Tribunal in the case of Mercer Consulting directed to exclude Coral Hub Ltd. and Cosmic Global Ltd. from list of comparables. 32. The Ld. Departmental Representative submitted that the Ld. CIT (A) committed error in directing to exclude Coral Hub Ltd. and Cosmic Global Ltd. from the comparables merely by relying upon the decision in the case of Mercer Consultancy Ltd. without considering how the facts are similar and without considering the CBDT Circular SO 890(E)/26/09/2000 listing products or services which c....
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....e list of comparables. We order accordingly." "13.3 However, we find this case to incomparable on the alternative argument advanced by the id. AR to the effect that total revenue of the Accounts BRO segment of Cosmic Global Limited is very low at Rs. 27. 76 lacs. We have discussed this aspect above in the context of CG- VAK's case and held that a captive unit cannot be compared with a giant case and thus excluded CG-VAK with turnover from Accounts BPO segment at Rs. 86.10 lacs. As the segmental revenue of BRO segment of Cosmic Global Limited at Rs. 27.76 lac is still on much lower side, the reasons given above would fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables." 6.4.2 I have considered the arguments of the Ld AR and perused the decision of Hon'ble ITAT Delhi in the case of Mercer Consulting. Following the decision of Hon'ble ITAT, I direct the AO/TPO to exclude Coral Hub Ltd. and Cosmic Global Ltd. from the list of final comparables." 35. The Ld. CIT (A) as directed to exclude the above two Comparables finding that the major outsourcing activit....