TaxTMI 
TaxTMI 
2022 (3) TMI 1635
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....icer 2(3)(2) ("TPO") in his order passed under Section 92CA(3) of the Act and subsequently confirmed by the Hon'ble Dispute Resolution Panel ("DRP"). Each of the ground is referred to separately, which may kindly be considered independent of each other and without prejudice to each other. That on the facts and circumstances of the case and in law, Transfer Pricing grounds: 1. The learned AO/TPO/DRP have erred in making an addition of INR 13,050,397 to the total income of the Appellant on account of adjustment in the arm's length price ("ALP") of the international transactions related to IT enabled services entered into by the Appellant with its associated enterprises ("AEs") and notional interest on outstanding inter-company receivables. 2. The learned AO/TPO/DRP have erred by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules") and modifying the same for determination of arm's length price ("ALP") of the impugned transaction to hold that the same are not at arm's length. 3. The learned AO/TPO/DRP have erred....
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....f the Act. 14. The learned TPO/AO/DRP have further erred in proceeding to benchmark the said transaction pertaining to inter-company receivables by rejecting economic analysis carried out in TP documentation and purported application of Comparable Uncontrolled Price ("CUP") method. 15. The learned AO has erred in not granting credit for foreign taxes claimed by the Appellant in its return of income and has accordingly computed the tax demand incorrectly. 16. The learned AO has erred in not granting Minimum Alternate Tax ("MAT) credit as claimed by the Appellant in its return of income and has accordingly computed the tax demand incorrectly. 17. The learned AO has erred in charging interest under section 234C of the Act. 18. The learned AO has grossly erred in initiating penalty proceedings under section 271 (1)(c) of the Act. 3. The brief facts of the case: The assessee company is wholly owned subsidiary of Headstrong Services LLC USA, engaged in the business of development of computer software, providing IT enabled services, which are in the nature of accounting support, quality, human resource services, etc. 4. The assessee filed....
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....count of transfer pricing adjustment 1,30,50,397/- Total Income 75,77,91,947/- Rounded off 75,77,91,950/- 8. Aggrieved by the order impugned dated 25-11-2016, the Assessee preferred the present Appeal on the grounds mentioned above. The Assessee has confined the present appeal to determination of arm's length price of provision of BPO services amounting to Rs. 7,74,83,517/- and submitted that no dispute in relation to other international transactions. 9. The Ld. Counsel appearing for the assessee submitted that, the appellant is seeking for inclusion of two Companies viz., Caliber Point Business Solution and R. System International (Appeal Ground No. 5 to 8) and further seeking exclusion of four Companies viz., BNR Udyog Ltd., E-Clerx Services Ltd., Infosys BPO Ltd., TCS E-serve Ltd. (Ground No. 9). The Ld. Counsel further submitted that, if the Grounds No. 5 to 9 are accepted, the other grounds will become academic ones. 10. We have heard the Ld. Counsel appearing for the assessee and also the Ld. DR for the Revenue, verified the records and gave our thoughtful consideration. 11. In so far as Appeal Ground No. 1 is concerned, the same is general in n....
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....ncial year then the same cannot be included in the list of comparables selected for benchmarking the international transaction. Therefore, the ITAT has held that if the comparable is functionally same as that of tested party then same cannot be rejected merely on the ground that data for entire financial year is not available. If from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings." 16. The Ld. Counsel for the Assessee has also relied on the Order of the Coordinate Bench of this Tribunal in the case of BT-eserv India Ltd. Vs. ITO (ITA No. 6690/Del/2016 dated 19/06/2018) and emphasized on the following paragraphs:- "5.6 The assessee has also prayed for inclusion of one comparable i.e. R Systems Ltd. which, although selected by the assessee, was rejected by the AO/TPO on the ground of different financial year ending. We find that this comparable was directed to be included by the ITAT Delhi Bench in assessee's own case for AY 10-11 in ITA No. 565/Del/2015 and the same was followed by the ITAT in AY 11-12 al....
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....rtaining to the said Company, that following the different accounting year can be used for comparability and analysis. In such cases, there are yearend expenses which cannot be allocated on the basis of available information to different quarters. In practically, some expenses are debited only at the end of the year and a prorate allocation is not accurate enough. Further, the assessee has failed to show how the available data pertaining to the above Company following a different accounting year can be used for comparability analysis. 19. In so far as, R System International, the said company has been held to be not comparable on the ground that, the comparability of an uncontrolled transaction can be analyzed only with the "data relating to financial year" in which the international transaction has been entered into. As the assessee follow the accounting year ending 31st March, the comparables must also have the data relating to the financial year ending 31st March, since the said data is not available, such company cannot be accepted as comparable. The Company having different financial endings has been rejected from the final set of comparables while calculating the average m....
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....ferences in accounting practices, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of gross profit margin in the open market; (v) the adjusted price arrived at under sub-clause (iv) is taken to be an arm's length price in respect of the purchase of the property or obtaining of the services by the enterprise from the associated enterprise; (c) cost plus method, by which,- (i) the direct and indirect costs of production incurred by the enterprise in respect of property transferred or services provided to an associated enterprise, are determined; (ii) the amount of a normal gross profit mark-up to such costs (computed according to the same accounting norms) arising from the transfer or provision of the same or similar property or services by the enterprise, or by an unrelated enterprise, in a comparable uncontrolled transaction, or a number of such transactions, is determined; (iii) the normal gross profit mark-up referred to in sub-clause (ii) is adjusted....
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....nsactions by independent enterprises, and thereafter, the residual net profit remaining after such allocation may be split amongst the enterprises in proportion to their relative contribution in the manner specified under sub-clauses (ii) and (iii), and in such a case the aggregate of the net profit allocated to the enterprise in the first instance together with the residual net profit apportioned to that enterprise on the basis of its relative contribution shall be taken to be the net profit arising to that enterprise from the international transaction [or the specified domestic transaction]; (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction [or a specified domestic transaction] entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the sam....
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....uch transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. (4) The data to be used in analysing the comparability of an uncontrolled transaction with an international transaction [or a specified domestic transaction] shall be the data relating to the financial year [(hereafter in this rule and in rule 10CA referred to as the 'current year')] in which the international transaction [or the specified domestic transaction] has been entered into: Provided that data relating to a period not being more than two years prior to [the current year] may also be considered if such data reveals facts which could have an influence on the determination of transfer prices in relation to the transactions being compared: [Provided further that the first proviso shall not apply while analysing the comparability of an uncontrolled transaction with an international transaction or a specified domestic transaction, entered into on or after the 1st day of April, 2014.] [(5) In a case where the most appropriate method for determination of the arm's length price of an ....
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....he most reliable measure of an arm's length price in relation to the international transaction [or the specified domestic transaction, as the case may be]. (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction [or the specified domestic transaction]; (b) the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (c) the availability, coverage and reliability of data necessary for application of the method; (d) the degree of comparability existing between the international transaction [or the specified domestic transaction] and the uncontrolled transaction and between the enterprises entering into such transactions; (e) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction [or the specified domestic transaction] and the comparable uncontrolled transaction or be....
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....ast quarter or any other such event. The assessee has to demonstrate that no such events have occurred which could distort the profitability from year to year. The partial financial comparison especially on the transfer pricing matter can give rise skewed results, which needs to be avoided to come to a correct and accurate conclusion with regard to the comparable. 26. We have gone through the judgment of the Hon'ble High Court Delhi in CIT Vs. Mckinsely Knowledge Centre India Pvt. Ltd. (ITA No. 217/2014 dated 27/03/2015). We find that, the Hon'ble High Court of Delhi has made observations and come to the above conclusion in para 14 of the Judgment since "there is nothing shown to the court that supports the revenue's argument that the ITAT fell into error in holding that if a comparable is following different financial year then the same cannot be included in the list of comparables selected for benchmarking the international transaction". On the other words, nothing has been shown to the Hon'ble High Court which supports the revenue's argument that, if a comparable is following a different financial year then the same cannot be included in the list of compar....
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....Jurisprudence, 12th edn. explains the concept of sub silentio at p. 153 in these words. A decision passes sub silentio, in the technical sense that has come to be attached to that phrase, when the particular point of law involved in the decision is not perceived by the court or present to its mind. The court may consciously decide in favour of one party because of point A, which it considers and pronounces upon. It may be shown, however, that logically the court should not have decided in favour of the particular party unless it also decided point B in his favour; but point B was not argued or considered by the court. In such circumstances, although point B was logically involved in the facts and although the case had a specific outcome, the decision is not an authority on point B. Point B is said to pass sub silentio. 12. In Gerard v. Worth of Paris Ltd. (k). ((1936) 2 All ER 905 (CA)), the only point argued was on the question of priority of the claimant's debt, and, on this argument being heard, the court granted the order. No consideration was given to the question whether a garnishee order could properly be made on an account standing in the name of the l....
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....9-TIOL-104-ITAT-Pune ii. Customer Services India Pvt. Limited 2009-TIOL-424-ITAT-Delhi iii. Schefenacker motherson limited 2009-TIOL-376-ITAT-Delhi iv. Panasonic India Pvt. Limited 2010-TII-47-ITAT-Del-TP v. Geodis Overseas P Limited 201 l-TII-34-ITAT-Del-TP vi. Haworth India Pvt. Limited ITA No. 5341/Del/2010 vii. TNT India Pvt. Limited 2011 TII-39-ITAT-BANG-TP viii. NGC Network India Pvt. Limited 2011-TII-45-ITAT-Mum-Intl ix. ADP Private Limited 201 l-TII-44-ITAT-Hyd-TP x. Deloitte Consulting India Pvt. Ltd. 1082 and 1084/Hyd/2010. 32. Further, the expression of "shall" used in Rule 10B(4) of the Rules is abundantly clearly that, the current year data of an uncontrolled transaction is to be used for the purpose of comparability while examining international transaction with the associate enterprises. We have also placed reliance on the following case laws with regard to stern use of Financial Year to Financial Year comparison. i. ACIT vs Birlasoft Ltd. 47 SOT 437, wherein it is held that, expression employed in Rule 10B(4) of the Rules makes it abundantly clear that the current year data ....
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....ng the annual report of the BNR Udyog Ltd., it is found that the said Company has undertaken substantial related party transaction of 49.6% during the year under consideration, therefore, fails related party filter. 37. Further, the Coordinate Bench of this Tribunal in BT India Pvt. Ltd. vs. ITO in ITA No. 6690/Del/2019 dated 19/06/2018 excluded the said Company from the comparables while computing the ALP, holding that it provides medical transcription services, which is not comparable to ITeS Service Provider. The relevant portions are as follows:- "5.1.1 Respectfully following the order of the co-ordinate Bench, on identical facts, we direct the AO/TPO to exclude BPO Infosys Ltd. from the final set of comparables. BNR Udyog Limited Apart from assessee's objections regarding BNR Udyog Ltd. having substantial RPT and application of the RPT filter at the segmental level by the TPO, it is also the assessee's contention that this company was functionally dissimilar to the assessee company as this company was providing medical transcription service. We find that, undisputedly, BNR Udyog Ltd. is carrying out medical transcription, medical billing and coding whereas ....
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....of certified coders deployed in outsourced medical coding work. It is further mentioned that as the margin from medical coding is on a higher side compared to medical transcription, medical coding is also known as insurance coding because it is assigning codes to diagnose and procedures which help in financial reimbursement from insurance companies and other government organizations, consulting firm, software companies etc. The next service area of the above company is medical billing which is a medical practice management and the doctor's key to getting paid and it maintains patient's financial accounts for collecting money. On looking at the income stream of the assessee on perusal of the profit and loss accounts, it is apparent that its earnings are from medical transcription, billing and collection and coding. On looking at the functional profile of medical transcription which is required to be carried out by well- trained persons who must be knowledgeable in the field of pharmacology. Further the comparable company has considered all the 3 segments as one segment. On perusal of page No. 78 of the annual report of the company it is noted that w.e.f. 1st April 2008 the c....
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....ng expenditures having different business models and the same is non-comparable by applying principal laid down in the case of Rampgreen [2015] 377 ITR 533 wherein Hon'ble Delhi High Court held as follows:- "33. The Special Bench of the Tribunal in Maersk Global Centers (India) Pvt. Ltd. (supra) struck a different cord. The Special Bench of the Tribunal held that even though there appears to be a difference between BPO and KPO Services, the line of difference is very thin. The Tribunal was of the view that there could be a significant overlap in their activities and it may be difficult to classify services strictly as falling under the category of either a BPO or a KPO. The Tribunal also observed that one of the key success factors of the BPO Industry is its ability to move up the value chain through KPO service offering. For the aforesaid reasons, the Special Bench of the Tribunal held that ITeS Services could not be bifurcated as BPO and KPO Services for the purpose of comparability analysis in the first instance. The Tribunal proceeded to hold that a relatively equal degree of comparability can be achieved by selecting potential comparables on a broad functional ana....
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....vices to it AE. Apart from that, it is further observed that this company has significant intangible which it uses in rendering KPO services, against which the assessee does not have any intangibles. As such, e-Clerx Services ltd. cannot be considered as comparable. The same is directed to be eliminated." 39. We also find that assessee is also engaged in this appeal in ITES industry and therefore the judgment of the coordinate bench cited by the Ld. authorized representative appropriately applies to the facts of this case also. In the above decision, it has been held that the e- Clerx services Ltd. is a knowledge process outsourcing company providing data analytics and data process solutions to global clients. It is further held that it is a KPO company and is quite different from the assessee providing only IT enabled services. Therefore, respectfully following the decision of the coordinate bench we direct the Ld. transfer pricing officer/assessing officer to exclude the above comparable from the comparability analysis." 5.3.1 In view of the above and respectfully following the order of the co-ordinate Bench in assessee's own case, we direct the AO/TPO to ex....
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....or exclusion of this company from the final set of comparables. We also find that BPO Infosys Ltd. was directed to be excluded by ITAT Delhi Bench in the case of Baxter India Pvt. Ltd. vs. ACIT in ITA 6158/Del/2016 which also provided captive IT Enabled Services to its AE. The year under consideration before the ITAT in the case of Baxter India (P) Ltd. was also AY 2012-13. The relevant observations are contained in Para 23 of the said order and the same are being reproduced for a ready reference: "23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPO Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd. We find the submissions of the ld. counsel for the assessee before TPO/DRP that in order to maintain the brand image of Infosys BPO Ltd. in t....
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....ival contentions and perused the annual accounts of the Accentia Technologies Limited submitted at page No. 1 to 108 of the paper book. As per page no 42 of the annual report the nature of services performed by this company are functions of medical transcription. 'Medical transcription' services are IT enabled services that require specialized skills in utilizing information technology in converting the voice data of the doctors who are located anywhere across the globe, consisting of patient history "and medical advices into electronic documents. Such confidential information is converted in to a written text document by medical transcription. This written text may be printed and hand placed in the patient's record, archived and/or retained only as an electronic medical record. The medical transcription can be performed in a hospital via remote transmission to the hospital or directly to the actual providers of services i.e. doctors etc. Medical transcription is still the primary mechanism for physician to clearly communicate with other health care providers accessing the patient's records to advise them on the state of the patient's health and past, current tr....
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....ble with the medical transcription function of the comparable company. But same cannot be said with respect to the medical coding and medical billing activities of the comparable company which are almost similar to the support functions performed by the assessee. However, in absence of segmental information available in case of comparable company with respect to the medical transcription business and medical coding and medical billing, it deserves to be rejected. It is apparent that financial results of the comparable company include profits of medical transcription business as well as medical coding and billing activities. As the functions of the medical transcription are not at all comparable with the functions performed by the company as already stated by us above, the above comparable company is required to be excluded on account of functional dissimilarity and non availability of segmental results, with the assessee. In view of this, we direct the Ld. Transfer pricing officer to exclude the Accentia technologies from the comparability analysis." 46. By respectfully following the above order of the Coordinate Bench, we are of the opinion that the TPO has committed an error b....
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....ve submitted that above comparable has a margin of 69.06 percentage and same was not included in the transfer pricing study report of the assessee, but it is included by the Ld. transfer pricing officer stating that it is functionally comparable to the assessee and does not own any significant intangibles. The contentions of the Ld. transfer pricing officer for inclusion of the above company were also upheld by the Ld. dispute resolution panel. Before us. The Ld. authorized representative submitted that this company is functionally different as it earns revenue from 4 different activities such as financial information processing, customer contract voice services, business process management and analytics. It was further stated that during the year it was taken over by the TCS Ltd. and therefore it has an exceptional year of operation. It was further contested that it be high risk and also earns super normal profit and further it has insufficient segmental information. He further held that this comparable has been excluded by the Ld. dispute resolution panel in assessment year 2010 - 11 on account of being functionally dissimilar to the assessee. He further relied on the decision of....
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....mputing ALP. 50. In view of the above discussions, we direct the AO/TPO to exclude the four companies ie: BNR Udyog Ltd., E-Clerx Services Ltd., Infosys BPO Ltd., TCS E-serve Ltd. from the final set of comparables for determining the Arm's Length Price in the international transaction. Accordingly we allow the Grounds of Appeal No. 9. 51. The Grounds of Appeal No. 10 to 12 have not been pressed by the Ld. Counsel for the Assessee as the same are academic in nature, therefore the said grounds are not adjudicated. 52. In so far as Grounds No. 13 and 14 are concerned, the Ld. Counsel for the Assessee submitted that, the early or late realization of sale/service proceeds is incidental to the transaction of sale/service and not a separate transaction in itself and the same is consequence of an international transactions and not an international transaction per-se. Further contended that, if the ALP in respect of the international transaction of sale is determined, then there can be no question of treating non receipt of interest in such transaction as separate international transaction warranting any further adjustment and once ALP is determined in respect of the sale/servi....
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....rence of Rs. 3.930/$ in FY 2010-11 and also monthly variation in the exchange rate ranged from 0.17% in June 2010 to -5.30% in Sept, 2010. 56. The Delhi Tribunal in case of Kusum Healthcare Pvt. Ltd. vs. ACIT (ITA No. 6814/Del/2014) order dated 31.03.2015 held that, the working capital adjustment takes into account impact of outstanding receivables and no further adjustment required if the margin of the assessee is higher than working capital adjusted margin of comparable. The Delhi Tribunal in case of Ameriprise India P. Ltd. vs. ACIT (ITA No. 2010/Del/2014) [order dated 14.08.2015] considered the decision of coordinate bench in the case of Kusum Healthcare and held that, the allowing working capital adjustment in the international transaction of rendering services can have no impact on the determination of ALP of the international transaction of interest on receivables from AEs. Further, the Delhi Tribunal in the case of McKinsey Knowledge Centre Pvt. Ltd. Vs. DCIT [ITA No. 154/Del/2016] (order dated 15.12.2016) followed their finding in the case of Ameriprise India (supra). 57. In the meanwhile, the Hon'ble Delhi High Court, vide order dated 25.04.2017 in the case of K....