AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2025 (3) TMI 1520
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....me of INR 11,64,62,570. The return filed by the assessee was selected for scrutiny, and statutory notices under section 143(2) and section 142(1) of the Act were issued and served on the assessee. Pursuant to the reference by the Assessing Officer ("AO") under section 92CA(1) of the Act, the Transfer Pricing Officer ("TPO") proposed a total transfer pricing adjustment of INR 9,90,90,367 vide order dated 28/10/2016, passed under section 92CA(3) of the Act. In conformity, the AO passed the draft assessment order dated 03/12/2016, under section 143(3) r.w. section 144C(1) of the Act after incorporating the transfer pricing adjustment proposed by the TPO. Since the assessee chose not to file the objections against the draft assessment order, the AO passed the final assessment order on 05/01/2017 under section 143(3) r.w. section 144C(3) of the Act, assessing the total income of the assessee at INR 21,55,52,940. The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee. Being aggrieved, the assessee is in appeal before us. 3. In this appeal, the assessee has raised the following grounds: - "The grounds hereinafter taken by the Appellant are without ....
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....Rules. 2:8 The AO/ TPO / CIT (A) have erred in rejecting companies having different FY ending or whose data does not fall within the 12 month period of 1 April 2012 to 31 March 2013. 2:9 The AO/ TPO/ CIT (A) erred in incorrect application of filter for related party transactions. 2:10 The AO/ TPO/ CIT (A) erred in disregarding the contention of the Appellant to undertake economic adjustments for working capital and market risk. 2:11 The AO / TPO/ CIT (A) has erred in computation of margins of comparables i.e. Excel Infoways Limited and Iris Business Services Limited. 2:12 The AO/ TPO / CIT (A) have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. i. Caliber Point Business Solutions ii. Cosmic Global Limited iii. ICRA Techno Analytics Limited iv. Informed Technologies India Limited v. Tech Process Solutions 2:13 The AO / TPO / CIT (A) erred on facts in arriving at a new set of comparable companies by adding following companies: i. Accentia Technologies Limited ii. Genesys International Corporation Ltd ....
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....economic adjustments for working capital and market risk. 3:11 The AO / TPO/ CIT (A) has erred in computation of margins of comparables i.e. Thirdware Solutions Ltd and CG - Vak Software and Exports Ltd. 3:12 The AO/ TPO / CIT (A) have erred in rejecting following comparable companies considered by the Appellant in its transfer pricing study report. i. Akshay Software Technologies Limited ii. AvaniCimcon Technologies iii. E-zest Solution Limited iv. Helios & Matheson Technologies Limited v. Tata Elxsi Ltd. vi. Mindtree Ltd. vii. Persistent Systems & Solutions Ltd 3:13 The AO / TPO / CIT (A) erred on facts in arriving at a new set of comparable companies by adding following companies which have an entirely different functionally and risk profile and are not comparable to the Appellant with respect to provision of IT services: i. Aspire Systems (India) Private Limited ii. Cyber Infrastructure Pvt Ltd. iii. Infobeans Technologies Ltd. 4.0 Re: General 4:1 On the facts and circumstances of the case, and in law, the AO erred in initiating penalty proceedi....
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.... In a situation where HERE India does not have a bandwidth to execute the production activity, the job may be assigned to an external Outsourced Production Centers ('OPC'). These OPCs are identified by HERE India and a contract for undertaking the production activity is entered into between the AEs and the OPCs. The payment to the OPCs towards the outsourced production activity is made by the AEs. However, the production activity undertaken by the OPCs will be verified by the Production team of HERE India to confirm if the mapping jobs executed by the OPCs are as per the specifications and standards laid down by NAVTEQ." 7. For benchmarking the international transaction pertaining to "Receipt from Production Services", the assessee adopted the Transactional Net Margin Method ("TNMM") as the most appropriate method with the Profit Level Indicator ("PLI") of Operating Profit to operating Cost ("OP/OC"). By considering itself the tested party, the assessee identified seven comparable companies with a weighted average margin of 13.37%. As the assessee computed its own PLI at 15.42%, accordingly, it claimed that the international transaction pertaining to "Rece....
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....el Infoways Ltd. 11. The first comparable challenged by the assessee is Excel Infoways Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is engaged in ITeS BPO services and since, only ITeS BPO services segment was considered as comparable to the assessee, the revenue from that segment alone was subjected to service revenue filter. The TPO further held that the entire revenue of this segment is out of BPO services. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company has low employee cost, diminishing revenue over the years and abnormal profits. Further, the assessee submitted that the company is engaged in IT and BPO services and the relevant segmental information of BPO services is not available. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to "Receipt from Production Services" on the basis that the TPO considered the relevant segmental information for margin working. The lear....
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....Accordingly, we direct the TPO/AO to exclude Excel Infoways Ltd. while benchmarking the international transaction pertaining to "Receipt from Production Services". (ii) MPS Ltd. 15. The next comparable challenged by the assessee is MPS Ltd. This company was included as comparable by the TPO, vide order passed under section 92CA(3) of the Act, on the basis that this company is carrying out activities which are functionally similar to the assessee and also qualifies all the filters. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company is engaged in various activities without availability of relevant segmental information. The assessee further submitted that this company undertakes extensive R&D activity and is also engaged in developing cloud-based publishing platforms. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to "Receipt from Production Services". Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 16. During the hearing....
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....on 92CA(3) of the Act, on the basis that this company is carrying out activities which are functionally similar to the assessee and this company also qualifies all the filters. Before the learned CIT(A), the assessee objected to the inclusion of this company as comparable on the basis that this company is functionally not comparable. The learned CIT(A), vide impugned order, disagreed with the submissions of the assessee and upheld the inclusion of this company for benchmarking the international transaction pertaining to "Receipt from Production Services". Being aggrieved, the assessee has challenged the inclusion of this company as comparable. 19. During the hearing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR vehemently relied upon the orders passed by the lower authorities. 20. We have considered the submissions of both sides and perused the material available on record. From the perusal of the annual report of IRIS Business Services Ltd. for the year under consideration, forming part of the annual report paper book from pages 1-106, we find that this company is engaged in the business of supply of software ....
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....s Quark Systems Private Limited, reported in [2011] 244 CTR 542 (P&H). Similarly, it was held by the Hon'ble Jurisdictional High Court in CIT v/s Tata Power Solar Systems Ltd, reported in [2017] 245 Taxman 93 (Bombay). 23. As regards the objections raised by the assessee that Omega Healthcare Management Services Pvt. Ltd. fails RPT filter, from the perusal of the annual report of Omega Healthcare Management Services Pvt. Ltd., forming part of the paper book from pages 107-196, we find that the entire revenue from product or services amounting to INR 139,10,73,488 was earned from the transaction with related party. Thus, it is evident that this company fails the filter of RPT more than 25% of the operating revenue applied by the TPO. Accordingly, we direct the TPO/AO to exclude Omega Healthcare Management Services Pvt. Ltd. while benchmarking the international transaction pertaining to "Receipt from Production Services". 24. To sum up, we direct that the four companies, i.e., Excel Infoways Ltd., IRIS Business Services Ltd., MPS Ltd. and Omega Healthcare Management Services Pvt. Ltd., be excluded while benchmarking the international transaction pertaining to "Receipt from ....
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....party, the assessee identified 14 comparable companies with a weighted average margin of 10.40%. As the assessee computed its own PLI at 15%, accordingly, it claimed that the international transaction pertaining to "Receipt from Software Development Services" is at ALP. 28. During the transfer pricing assessment proceedings, the TPO by applying additional filters rejected seven comparable companies selected by the assessee, finding them to be not satisfying one or the other filter or being functionally not comparable to the assessee. The TPO also introduced three new comparable companies, i.e. Aspire Systems (India) Pvt. Ltd., Cyber Infrastructure Pvt. Ltd., and Infobeans Technology Ltd. By rejecting the contentions raised by the assessee against the selection of new filters as well as the companies included/excluded, the TPO, vide order passed under section 92CA(3) of the Act, arrived at a set of following ten comparable companies for benchmarking the international transaction of "Receipt from Software Development Services": - Sr. No. Company Name Margins 1 Aspire Systems (India) Pvt. Ltd. 34.94 2 CG Vak software and export Itd 15.84 3 Cyber Inf....
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....earing, the learned AR reiterated the submissions made before the lower authorities. On the other hand, the learned DR relied upon the orders passed by the lower authorities. 33. We have considered the submissions of both sides and perused the material available on record. As per the assessee, the profit and loss account of this company is not available, and accordingly, the financial statements of this company are insufficient for any benchmarking analysis. We find that the coordinate bench of the Tribunal in Lionbridge Technologies Private Ltd v/s ACIT, in ITA No. 7304/Mum/2017, for the assessment year 2013-14, vide order dated 20/02/2023, while excluding this company observed as follows :- "016. With respect to the aspire system India Ltd, this comparable was prayed for rejection by the assessee, this was rejected by the ITAT as per order dated 21 May 2018. In the miscellaneous application dated 27 May 2019 the ITAT recalled order to that extent for adjudication on comparability of this comparable. 017. The argument of the learned authorized representative is that this comparable company should be rejected for the reason that it is engaged in IT consulting a....
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....able. The profit and loss account of this company is also not available. On these ground itself the learned transfer-pricing officer has rejected the companies selected in the transfer pricing study report. Further, the learned transfer pricing officer himself used information available in the profit and loss account in order to reject the assessee's other comparables. Therefore, on the same reasoning, this comparable company should also be excluded. We find that if the annual accounts in its all completeness are not available, it cannot be included in the comparability analysis. In the present case, the argument of the learned authorized representative is that profit and loss account of the company is not available. Therefore in absence of the profit and loss account the margin, income stream, nature of functions performed resulting into expenditure incurred are not known to the assessee. In such circumstances, this comparable company should be excluded from comparability analysis. We direct the learned transfer-pricing officer accordingly." 34. Therefore, respectfully following the decision of the coordinate bench of the Tribunal cited supra, we direct the TPO/AO to exclud....