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2015 (8) TMI 43 - ITAT HYDERABAD

2015 (8) TMI 43 - ITAT HYDERABAD - TMI - Transfer pricing adjustment - section of comparable - Held that:- As far as Accentia Technologies Ltd., is concerned, the DRP did not direct to exclude the comparable but directed the AO to verify whether there is any extraordinary event which had an effect on financials. Since it is AO who on verification excluded the comparable, we do not see any reason to interfere with the direction of the DRP. - Decided against revenue.

As far as Eclerx Se .....

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bjected on the same twin conditions as far as TCS e-Serve International Ltd., also. There is contradiction in the findings of the DRP in excluding two companies while rejecting assessee's objections in TCS e-Serve International Ltd. DRP also did not give any finding whether there is any influence on the margins of the comparables as there is no higher turnover filter adopted by the AO while selecting the comparables. As we see from the list of final comparables even a company with ₹ 1.74 C .....

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nue in ground No. 2. - Decided in favour of revenue for statistical purposes.

Excluding telecommunication charges from the total turnover while excluding the same from the export turnover - Held that:- With reference to ground of amount of communication charges excluded, AO considered an amount of ₹ 51,89,321/- i.e., total communication charges spent in India also whereas assessee objected before the DRP that the data link charges were only ₹ 39,22,626/-, which required to .....

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nd is not maintainable. Accordingly, the same is rejected.- Decided against revenue. - I.T.A. No. 473/HYD/2015 - Dated:- 29-7-2015 - Shri B. Ramakotaiah and Shri Saktijit Dey, JJ. For the Petitioner : Shri Mohan Singhania, CIT-DR For the Respondent : Shri Ravi Bhardwaj, AR ORDER PER B. RAMAKOTAIAH, A.M. : This is an appeal by Revenue against the directions of Dispute Resolution Panel [DRP], Hyderabad dated 24-12-2014. Assessing Officer (AO) has raised the following grounds: "2. Whether on .....

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hat such a minute comparison reduces transfer pricing study to comparison between replicas of companies? 4. Whether on the fact and circumstances of the case, the Hon'ble DRP is justified in deleting comparable M/s Accentia Technologies Ltd for extraordinary even on the grounds of extraordinary events like mergers, acquisitions ignoring the fact that turnover is not the criteria in IT industry and it is the quality of services that matter? 5. Whether on the facts and circumstances of the cas .....

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7; 39,22,626/- only instead of the entire communication charges of ₹ 51,89,321/-". 2. Briefly stated, assessee-company is engaged in the business of providing healthcare administrative back office services to its Associated Enterprise [AE] and works on cost + 15% basis. Assessee-company filed return of income declaring total income of ₹ 3,38,503/-. As assessee's transactions are with AE, the matter was referred to Transfer Pricing Officer [TPO], who after rejecting assessee& .....

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the TPO order. the TPO has not applied any upper turnover filter and has not gone into verticals/horizontals and high end or low end distinction of the comparable companies. The Panel is of the opinion that M/s. Infosys BPO and TCS E Serve Ltd. should not be included as comparable in view of the advantageous brand value along with high turnover of ₹ 1000 crores and above. Similarly, M/s. Accentia Technologies Ltd., should be excluded from extraordinary event, after verification of the fact .....

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aforesaid company being treated as a comparable by holding that not only the said company is functionally different being engaged in providing KPO services but it has also shown extraordinary high profits. Following the aforesaid decision of co-ordinate bench of Tribunal in case of Capital IQ Information Systems, we hold that this company cannot be treated as comparable". However, the objections of the assessee for exclusion of TCS E serve International Ltd. are rejected as the company has .....

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been applied by the TPO and higher turnover does not result in higher profits. There is no co-relation between earning of profits and the turnover in the BPO business. It was further submitted that DRP while rejecting Infosys BPO and TCS e-Serve Ltd., however, rejected the objections of assessee with reference to TCS e-Serve International Ltd, which is also similarly placed. As far as TPO is concerned, all the three companies are selected after due analysis and referred to the relevant findings .....

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the said company is held to be a KPO, but assessee's business is also in the nature of KPO services and not BPO services. Accordingly, it was submitted that DRP wrongly excluded the above four companies. It was submitted that the order of TPO may be restored. 5. Ld. Counsel, however, in reply submitted that Infosys BPO and TCS e-Serve Ltd., have more than ₹ 1,000 Crores business as observed by the DRP, whereas assessee's turnover was only ₹ 27 Crores. Even though, TPO did not .....

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s submitted that DRP directed the AO to verify whether there is any extraordinary event which had an effect on financials. AO after due verification only excluded the company. He submitted that DRP's direction to the AO was to verify but it did not exclude directly in their order. As far as Eclerx Services Ltd. Is concerned, the DRP has rightly relied on assessee's own case for 2007- 08 and excluded the company, as it was providing KPO services whereas assessee is providing simple BPO se .....

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n excluded the comparable, we do not see any reason to interfere with the direction of the DRP. As far as Eclerx Services Ltd., is concerned, DRP has given a clear finding based on co-ordinate bench decision that the said company was providing KPO services which are not comparable to assessee's BPO services. Since the decision of the DRP is consistent with the decision of the co-ordinate bench, we do not see any reason to interfere with the same. Next to be considered is whether DRP is corre .....

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tageous brand value along with high turnover of ₹ 1,000 Crores and above. Assessee has objected on the same twin conditions as far as TCS e-Serve International Ltd., also. There is contradiction in the findings of the DRP in excluding two companies while rejecting assessee's objections in TCS e-Serve International Ltd. DRP also did not give any finding whether there is any influence on the margins of the comparables as there is no higher turnover filter adopted by the AO while selectin .....

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remit the matter to the DRP for limited purpose of giving detailed order on the contentions raised by Revenue in ground No. 2. This ground is considered allowed for statistical purposes. As stated above, ground No. 3 and 4 are rejected. 7. Coming to the issue raised in ground No. 5 & 6, the issue of excluding telecommunication charges from the total turnover while excluding the same from the export turnover is consistent with the decision of the co-ordinate benches of ITAT as well as the ord .....

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