New User   Login      
Tax Management India .com TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

2015 (7) TMI 561 - ITAT DELHI

2015 (7) TMI 561 - ITAT DELHI - TMI - Transfer pricing adjustment - selection of comparable - Coral Hub Limited - Held that:- In the case of Mercer Consulting (India) Pvt. Ltd. (2014 (7) TMI 715 - ITAT DELHI) also the company was engaged in rendering IT and IT enabled services to its AEs. This company was providing service in the nature of application development, quality assurance, application maintenance, implementation services, helpdesk services, administrative processing, contribution proce .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

. The business model of assessee is not comparable to coral hub particularly on account of different models adopted by two companies for carrying out its functions. We, accordingly, direct the AO to exclude this comparable.

Eclerk Services Ltd. - 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 determining ALP of the transactions be .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ated by TPO in his order. This could not be done by AO unless there was direction by ld. DRP. The AO could not vary the margins as computed by TPO in his order, because once reference has been made by AO under section 92CA(1), then in view of the provisions of section 92CA(4), the AO is required to compute the total income of the assessee under sub-section (4) of section 92C in conformity with the ALP as determined by the TPO. Therefore, unless DRP has given any specific direction altering the A .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ated 28-01-2014, passed u/s 143(3) read with section 144C(3) of the I.T. Act, 1961. 2. Brief facts of the case are that the asesssee company, in the relevant year, was engaged in the provision of information Technology ( IT ) enabled back office support services in the nature of customized business/ financial research support to Copal Group. The assessee had an ITES agreement with Copal Group under which it provided the aforementioned services. It primarily provided back office support for Copal .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ear 2008-09 the assessee undertook the following international transactions with its associated enterprises: S.No. Description of the transactions Amount In rupees 1. Provision of IT enabled back office support services 424,897,981 2.2. The benchmarking analysis in regard to these international transactions was done as under Particulars Provision of ITeS Most appropriate method Transactional Net margin method ( TNMM ) PLI used Operating Profit ( OP )/ Total Cost ( TC ) No. of comparables 14 Comp .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ntitative filters - Companies having other operating income (other than 'manufacturing' and 'trading' income) to sales greater than 50% were accepted; - Companies having research & development costs to sales less than 3% were accepted; - Companies having net fixed assets to sales less than 200% were accepted; - Companies having average sales less than INR 1 crore were rejected; Companies with net worth less than zero were rejected; and - Companies having advertising, marketin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

0% 5. Infosys BPO Ltd. Prowess 24.38% 6. Jindal Intellicom Ltd. Prowess -5.90% 7. Sparsh BPO Services Ltd. Prowess 4.02% 8. Omega Healthcare Management Services Pvt. Ltd. Capitaline 15.43% 9. In House Productions Ltd. (Healthcare segment) Seg-P 6.51% 10. Spanco Ltd. (BPO Segment) Seg-P 0.73% 2.6. However, ld. TPO did not accept the economic analysis and carried out fresh search and determined the PLI at 30.99% as under: S. No. Company OP/TC as per the TPO order (using data for FY 2008-09) Status .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

30.99% 2.7. He, accordingly, made an adjustment of ₹ 5,07,62,260/-. 2.8. Ld. TPO also issued a show cause notice dated 2-12-2012 pointing out that as per examination of the balance-sheet, receivables were taken which implied that the payment for the invoices raised by the assessee had not been received within the stipulated time as provided in service agreement with AE. Accordingly, assessee was required to furnish the time period for payment as per service agreement with AE. However, ins .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

to benchmarking of receivables, inter alia, on the ground that receivables was not an international transaction which warranted benchmarking and further objected to imputing the interest rate of 16% for the delay in receipt of payment. However, ld. TPO did not accept and after detailed discussion imputed the interest @ 15.77% and made an adjustment of ₹ 18,53,019/-. 2.9. Accordingly, the total adjustment made by ld. TPO was ₹ 5,26,15,369/-. 2.10. The assessee filed objections before .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed 29-3-2014 and determined the final set of comparables as under: S. No. Company OP/TC as per the TPO order (using data for FY 2008-09) 1. Aditya Birla Minacs Worldwide Limited 23.88% 2. Coral Hub Limited 36.93% 3. Eclerx Services Ltd. 57.7% 4. Infosys BPO Limited 24.42% 5. Microgenetic Systems Ltd. 21.47% 6. Jindal Intellicom Systems Ltd. -7.36% Arithmetic Mean 26.17% 2.11. Being aggrieved with the assessment order read with order passed u/s 154, the assessee is in appeal before us and has tak .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

at the international transactions undertaken by the appellant do not satisfy the arm's length principle envisaged under the Income-tax Act 1961 ('Act'). In doing so the Ld. DRP has grossly erred in agreeing with the Ld. TPO's action of; 2.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2. ignoring the fact that the appellant is entitled to tax holiday under section 10A of the Act on its profits and therefor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

/ prior years' data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2008-09) data for comparable companies should be used despite the fact that the same was not necessarily available to the Appellant at the time of preparing its TP documentation; 2.5. rejecting comparability analysis in the TP documentation based on application of the following additional revised filters in determining the ALP: 2.5.1. exclusion of companies having different financial y .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he final com parables set for benchmarking a low risk captive unit such as the appellant (disregarding judicial pronouncements on the issue) 2.7. including certain companies that are not comparable to the appellant in terms of functions performed, asset employed and risks assumed; 2.8. excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the appellant in terms of functions performed, assets employed and risks assumed; 2.9. ignoring the business/ commerci .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ppellant as per the old proviso to section 92C(2) of the Act; and 2.11. not allowing the appellant the benefit of working capital adjustment 2.12. disregarding judicial pronouncements in India in undertaking the TP adjustment. 3. Imputing interest on receivables from the Associated Enterprise CAE') beyond the credit period of the appellant on an ad hoc basis of credit period and interest rate, while completely disregarding the detailed submissions made by the appellant explain that such adju .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ccepted by the Ld. TPO for the Appellant in the succeeding AY 2010-11 ; 5. The Ld. AO erred in not verifying the factual errors in computation of the operating margins of the comparables and accordingly re-computing the Arm's Length Price (,ALP') accordingly while passing the order, pursuant to the directions of the Ld. DRP; 6. The Ld. DRP erred in confirming the Ld. TPO/AO's action in proposing to initiate penalty under section 271(1)(C) of the Act. 7. That the Ld. DRP has erred bot .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is functionally different as the company has its own IPRs and Know-how and abnormally high/ volatile profit margin. 5. Ld. counsel pointed out that this company is primarily out sourcing from its AEs and outsource parties constitute 90% of the total operating cost. He pointed out that the employees cost is only 2-3% of the total operating expenses whereas in asessee s case the employees cost is more than 55% as is evident from PB 73 wherein the personnel expenses have been ₹ 28,11,39,163/- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Maersk India Pvt. Ltd. Vs. DCIT (2009-TIOL-322-ITAT-Mumbai). 6. Ld. Standing Counsel submitted that it is to be examined as to what services are rendered by assessee. He referred to pages 224 to 361 of the PB, containing annual report and pointed out that the business model of this comparable was as under: Data Capture & Digitization Data Conversion E-Publishing Digital Library Solutions Online Books Stores Classic Books Publishing Fund Accounting Services. 6.1. He further referred to page 1 .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

decision of ITAT Hyderabad Bench in the case of Deloitte consultant Pvt. Ltd., wherein it has been held as under: It appears that the VITL has outsourced the manpower and the cost of outsourcing appears to have been included in the other heads of the expenditure instead of wages- employee cost. Moreover, the intangibles will not materially affect the price of profit earning. By outsourcing the manpower, the VITL would have incurred more cost compared to the assessee company, thus resulting in l .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

by selecting the VITL as comparable company. 7. We have considered the rival submissions and have perused the record of the case. The ITAT Delhi Bench in the case of Mercer Consulting (India) Pvt. Ltd. Vs. DCIT (ITA no. 966/Del/2014) the Tribunal vide its order dated 6-6-2014 has observed as under: 12.3. Reverting to the facts of the extant case, we find that the position as obtaining in the present case is rather simple inasmuch as the assessee, having originally included this case in the list .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

suggests that outsourcing charges constitute 90% of the total operating cost in this case. On a specific query, the Id. DR admitted that our assessee is engaged in the business of doing activities at its own without any outsourcing. This crucial factor, having a greater bearing on the profitability, makes it distinguishable from the assessee. The Mumbai Bench of the Tribunal in the case of Hapag Lloyd Global Services (supra) has held that Vishal Information Technologies Ltd. cannot be considere .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ith these two cases, we are of the considered opinion that this case is required to be excluded from the list of comparables. We order accordingly. 7.1. We find that in the case of Mercer Consulting (India) Pvt. Ltd. (supra) also the company was engaged in rendering IT and IT enabled services to its AEs. This company was providing service in the nature of application development, quality assurance, application maintenance, implementation services, helpdesk services, administrative processing, co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the comparables. The business model of assessee is not comparable to coral hub particularly on account of different models adopted by two companies for carrying out its functions. We, accordingly, direct the AO to exclude this comparable. II. Eclerk Services Ltd. 8. As regards Eclerk Services Ltd., the asesssee s contention was that there was functional dissimilarity with assessee s functions, as it was a knowledge process outsourcing company engaged in providing consulting services, process ou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

62% in its revenue as compared to the previous year. Further, there had been a rise of 50% in the intangibles in the nature of computer software from FY 2007-08 to FY 2008-09 and the amount of intangible as a percentage of total fixed assets was 10%, whereas the assessee company did not own any interest in the intangibles (technical or marketing). 8.1. Ld. TPO did not accept the assessere s contention and relied on CBDT Circular SO 890(E) dated 26-9-2000, which had given a detailed list that co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

2106/Hyd/2011 (AY 2007-08) and 1864/Hyd/2012 (AY 2008-09), TS-140-ITAT- 2013 (Hyd)-TP] - Capital IQ Information Systems (India) Pvt. Ltd. (ITA no. 1961/Hyd/2011, ITAT Hyderabad) - Zavata India Pvt. Ltd. (ITA no. 1781/Hyd/2011, TS-156-ITAT. - Maersk India Pvt. Ltd. Vs. ACIT (ITA no. 7466/Mum/2012, ITAT Mumbai). 10. Ld. Standing counsel reiterated the submissions made with regard to Coral Hub Ltd. 11. We have considered the submissions of both the parties and have perused the record of the case. .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

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 auto .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and 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 au .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed 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 determining ALP of the transactions between the assessee company with its AEs. We, accor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ompany at 0.50% in its TP order dated 1-1-2013. However, during the course of assessment proceedings, the ld. TPO had taken the margin at 23.88% on the basis of safe Harbour Rules instead of .5%. He submitted that no opportunity was provided to assessee for varying the PLI and no basis for the same has been pointed out. 14. Ld. counsel referred to page 296 of the PB and pointed out that assessee had computed the PLI at -2.52% in the TP report. 15. As regards Microgenetic Systems Ltd., ld. counse .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version