TMI Blog2015 (7) TMI 772X X X X Extracts X X X X X X X X Extracts X X X X ..... O/TPO to exclude eClerx Services Ltd., from the set of comparables selected by the TPO. Mold Tex Technologies Ltd. - nature of the functions performed by the Mold Tek which have been examined by the Special Bench in M/s Maersk Global India Pvt.Ltd. [supra] and found is not compared with the low end ITES service provider Co. we hold that this Co. is functionally not comparable with that of the assessee. Accordingly, we direct the AO/TPO to exclude Mold Tek from the list of comparables. In view of the statement and plea of the learned AR we direct the AO/TPO to re-compute the ALP after excluding the above two Co. namely M/s Eclerx and M/s Mold Tek (Supra) and then determine the adjustment, if any after giving the benefit of tolerance range of +=5%. Exclusion of communication expenses/lease line charges from export turnover for the purpose of computation of deduction u/s 10A - Held that:- if the communication expenses are excluded from the export turnover then, the same should also be excluded from the total turnover in view of the judgment of jurisdictional High Court in the case of M/s Tata Elxsi Ltd. reported in [2011 (8) TMI 782 - KARNATAKA HIGH COURT ] - Decided in favo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in law and on facts in upholding the AL margin arrived at y the ld.TPO by not considering the benefit of the 5 percent tolerance range allowed under the Act and the Rules. 9. The ld.AO/Hon ble DRP have erred in not granting appropriate working capital adjustments to the appellant based on the appropriate working capital adjustment workings which were provided by the appellant. 10.The ld.AO/Hon ble DRP have erred in upholding the ld.TPO s action of not making further downward margin adjustment to consider the risk, differentials between the appellant and the comparable companies, thereby rejecting the risk adjustment workings provided by the appellant. 11. The ld.TPO erred in computing the operating margins of the comparable co. at higher levels and determining the operating margin of the appellant to be lower than the margin actually earned by the appellant, and the Hon ble DRP and the ld.AO have erred in upholding the same. 12. The Hon ble DRPld.AO have erred in law and on facts in upholding the TPO s action of adding the recovery of expenditure received from the associated enterprises amounting to ₹ 3,18,81,914/- to the operating cost and operat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in the appeal of the assessee are left for our consideration and adjudication are ground no.5,15 16. 5. Ground no.5 regarding the transfer pricing adjustment made by the TPO and confirmed by the DRP. The assessee company is engaged in the business of export of software development services and ITEs Services. There is no dispute as far as the international transactions of the assessee in the segments of software development services. The dispute before us is only in respect of the international transactions carried out by the assessee in the ITES segment. The assessee is a subsidiary of Goldman Sachs Mauritius LLP. The assessee provides following services to Goldman Sachs group companies. i) Bank end services to support business processes in the areas of operations, technology, support, finance, investment banking, global investment research, business intelligence group, human capital management etc. and ii) Software Development Services 6. The AE group of assessee is a goldman investment banking securities and investment management group that provides a wide range of services to worldwide to a diversified client sake. The assessee benchmark its transaction in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies Ltd -13.29 Average 24.75 Thus, the TPO has determined the average margin of the comparable companies at 24.75%. This set of comparables considered by the TPO also includes 5 comparables companies selected by the assessee which are as under; Sl.No Name of the comparable company Op.margin to cost (FY 2007-08) 1 Caliber Point Business Solutions Ltd 10.97 2 Cosmic Global Ltd 23.30 3 Spanco Ltd (SEg.) earlier known as Spanco Telesystems Solutions Ltd) 8.81 4 Allsec Technologies Ltd -13.29 5 R Systems International Ltd ()Seg.) 4.30 The TPO also allowed the working capital adjustment at 0.74% while making adjustment on account of ALP. The TPO worked out the assessee s operating margin at 16.62% and accordingly, proposed an adjustment of ₹ 30,27,18,666/- after a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith that of the assessee which is in a different nature of activities which is low end ITES. The learned AR has further pointed out that though, the TPO for theAY:2010-11 proposed to include Eclerx Services Ltd in the list of comparables however, while passing the final order dated 30.01.14 by the TPO Eclerx was excluded from the final set of comparables selected by the TPO. The learned AR submitted for the AY: 2010-11 the TPO itself had excluded this said Co. by treating the same as not comparable with the assessee. He has referred the show cause notice dated 1.11.2013 at page- 589 of paper book no.2 and the TPO order dated 30.1.13 at page no.602 of paper book no.2 in support of his contention that this Co. was found not comparable by the TPO for the purpose of determination of ALP in respect of ITES segment. In support of his contention the learned AR relied upon the decision of the Mumbai Bench of the Tribunal in the case of Maersk Global Centres India Pvt.Ltd Vs ACIT 31 ITR (Trib.)1 as well as the decision dated 9.7.14 and in case of Lionbridge Technologies Pvt.Ltd. Vs ITO in ITA No.7498(M)/2012. 8. On the other hand, the learned DR has submitted that the objects of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data analysis KPO service provider specializing in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services (P)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 alongwith multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support delivery. These software automation tools increase productivity allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services (P)Ltd and its functional profile, we are of the view that this company is also mainly engaged in providing high end services involving specialized knowle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egment is concerned and therefore, the said Co. cannot be compared with the assessee Co. for the purpose of determining ALP in respect of international transactions of providing ITES to its associated enterprise. Accordingly, we direct the AO/TPO to exclude eClerx Services Ltd.,(Supra) from the set of comparables selected by the TPO. Mold Tex Technologies Ltd., 12. The learned AR of the assessee has referred to the director s report of M/s Mold Tex Technologies Ltd., and submitted that this Co. was not having an extra ordinary event of demerger of its subsidiary M/s Mold Tek Tech.Ltd., and amalgamated with Tekmen Tool (P)Ltd., The scheme of amalgamation was approved by the Hon ble Andhra Pradesh High Court vide order dated 15/07/2008 therefore, there was amalgamation and demerger in respect of this Co. during the year under consideration. He has referred to the business activity of the said Co. as involved in the structural engineering KPO. Thus, the learned AR has submitted that this Co. is entirely in the different nature of activity and functions which is not comparable with the assessee. In support of his contention he has relied upon the decisions of the Special Ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oviding low end services. It may be pertinent to note here that the financial year 2007-08 was a unique ear for Mold Tek Tech.Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool (P)Ltd and Mold Tek Tech.Ltd. and demerger between Mold Tek Technologies Ltd., simultaneously, was sanctioned by the Hon ble Andhra Pradesh High Court by 15th July, 2008 with the appointed date for amalgamation and demerger being as October, 2007 and April 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company provision for derivative loss of ₹ 6.43 Crores made by Mold Tek Tech.Ltd. was excluded by the AO treating the same as non-operating expenses whereas in the case of Rusabh Diamonds Vs Asst.CIT(reported at (2013) 155 TTJ (Mum.) 386 (2013) 89 DTR (Mum.)(Trib.) 57 Ed) it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. 83. For the reasons given above, we are of the view that if the functions actually performed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP was not justified in the comparing the same with the assessee which is functionally different insofar as assessee is engaged in providing low end back office support services . 16. In view of the above facts and nature of the functions performed by the Mold Tek which have been examined by the Special Bench and found is not compared with the low end ITES service provider Co. we hold that this Co. is functionally not comparable with that of the assessee. Accordingly, we direct the AO/TPO to exclude Mold Tek from the list of comparables. 17. The learned AR of the assessee has submitted that the assessee would not seek further exclusion of other comparables if the TPO/AO is directed to exclude these two companies from the comparables than the mean margin would be within the tolerance range of +=5% and consequently no adjustment can be made on this account. In view of the statement and plea of the learned AR we direct the AO/TPO to re-compute the ALP after excluding the above two Co. namely M/s Eclerx and M/s Mold Tek (Supra) and then determine the adjustment, if any after giving the benefit of tolerance range of +=5%. 18. Ground no.15 16 is regarding exclusion of commu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otal turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the deno0minator cannot be different. Therefore, though there is no definition of the term total turnover in section 10A, there is nothing in the said section to mandate that what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined y the Legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, export turnover is defined, and when the total turnover includes export turnover, the very same meaning given to the export turnover by the Legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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