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2015 (9) TMI 954 - ITAT BANGALORE

2015 (9) TMI 954 - ITAT BANGALORE - TMI - Transfer pricing adjustment - Held that:- If the assessee's claim for revised segmental results are found to be acceptable, there is every possibility that pricing of its international transactions would come within +/- 5% of the PLI worked out by the TPO himself. Then the issue regarding exclusion and/or inclusion of comparables may not arise at all. We therefore, set aside the orders of the authorities below and remit the issue back to the file of the .....

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Mold-Tek Technologies Ltd (seg) - In recent decision rendered in the case of Adobe Systems India Pvt. Ltd. (2011 (1) TMI 933 - ITAT NEW DELHI) exclusion of comparables showing supernormal profits as compared to other comparable is fully justified. We, therefore set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh after taking into consideration the submissions made by the assessee before .....

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the comparables, while making the TP study, we prefer to keep this issue open. AO can consider the claim of the assessee that deduction u/s. 10A of the Act, has to be given to it after the TP adjustments, if any required for the ITES. - Additional ground allowed for statistical purposes. - IT (TP) APPEAL NO. 1090 (BANG.) OF 2011 - Dated:- 11-6-2015 - N.V. VASUDEVAN AND ABRAHAM P. GEORGE, JJ. For The Appellant : Suresh Muthu Krishnan, CA For The Respondent : C.H. Sundar Rao, CIT-DR-I ORDER Abraha .....

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the matter, and if not considered, would result in irreparable damage to the assessee. Ld. AR submitted that if the additional grounds are considered by this Tribunal, the matter could be referred back to the AO/TPO, for verification and disposal. 3. First, we shall take up the issue relating to admission of additional grounds. Such additional grounds are reproduced hereunder: "29. The transfer pricing adjustment calculated by the Learned Transfer Pricing Officer ("TPO") was based .....

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segment earlier. The mark-up on total cost for Software and Information Technology enabled services segments, based on corrected profit and loss account segmentation is 22.62% each for the financial year 2006-07. 30. The learned A.O be directed to recomputed the allowance of claim u/s. 10A of the appellant having regard to the revised and correct segmental margins of the appellant." 4. In so far as the additional ground no. 29 is concerned, it is not disputed by the Revenue that incorrect .....

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Tribunal as appearing at paragraphs 9 to 11 of its order is reproduced hereunder: '9. We have perused the order and heard the rival contentions. The directions of the DRP with regard to the claim of assessee for re-allocation of cost between its packaging unit and ITES unit, in our opinion, unambiguous. The DRP has directed the AO to verify actual segmented cost base and compute the ALP. Pursuant to such directions dated 29-11-2013, assessee had on 20-12-2013, filed a letter dated 19-12- 201 .....

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21,342,134 OP/TC 13.20% 20.91% Revised margins as per letter dated 16-02-2012 Particulars IT/ITES Packaging Unit Total Revenue 93,200,220 60,563,338 153,763,557 Total Op. cost (TC) 77,188,082 55,233,342 132,421,424 Op. cost(OP) 16,012,138 5,329,996 21,342,134 OP/TC 20.74% 9.65% 10. In our opinion, the AO should not have taken refuge under an order passed on an earlier rectification petition by the assessee in which it had pointed out the non- consideration of the revised segmantal results filed .....

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segmental results furnished in the TP documentation, and not the revised segmental results furnished by the taxpayer later, as it was seen that no basis/evidences in support of the allocation of expenses the revised segmental financials, were furnished by the taxpayer". 11. We are therefore, of the opinion that the directions of the DRP has not been properly considered by the lower authorities. If the assessee's claim for revised segmental results are found to be acceptable, there is e .....

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nd no. 1 of the assessee is allowed for statistical purposes.' However, before giving the directions in this regard, it would be necessary for us to go into the other grounds raised by the assessee on the TP matters. 5. In so far as additional ground no. 30 is concerned, it is consequential in nature, once additional ground no. 29 is admitted. We, therefore, admit the additional grounds raised by the assessee. 6. Grounds 1 to 8 are general needing no specific adjudication, since the assessee .....

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h the comparables considered by the TPO. 7. Per contra , Ld. DR fairly agreed that vis-a-vis, software development services segment, the matter required a fresh look by the AO/IPO since the margins of the assessee would be different once allocation of Head office expenditure was done correctly to the various segments. 8. We have heard the rival contentions and perused the materials on record. The margins of the assessee, as worked out by the TPO for the various segments for the relevant previous .....

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tware ITES Packaging Unit Total Revenue 43,058,400 51,054,457 93,312,222 187,425,079 Total Operating Cost (TC) 35,115,527 41,636,572 83,908,598 160,660,697 Operating Profit (OP) 7,942,873 9,417,885 9,403,624 26,764,382 OP/TC of the assessee. 22.62% 22.62% 11.21% 10. As already noted by us at para 04 above, the coordinate bench in assessee's own case for A.Y. 2009-10, had directed the TPO to consider the revised segmental results, after verification. Accordingly, for impugned year also, we di .....

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ishal Information Technologies Ltd, were required to be excluded by virtue of the decision of Hyderabad Bench of this Tribunal in the case of Capital IQ Information Systems (India) (P.) Ltd. v. Dy. CIT (ITA No.1961/Hyd/2011, Dated:- 23-11-2012). 12. Per contra Ld. DR submitted that out of the above three companies for which the assessee was seeking exclusion, Mold-Tek Technologies Ltd (seg) and Vishal Information Technologies Ltd, were in assessee's list and hence could not be considered for .....

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IT) 58,49,939 69,33,087 1,34,00,720 Operating Profit to Cost Ratio 15.72% 15.71% 16.76% l4. Assessee had justified its pricing of the international transactions based on the TNMM both for ITES and Software development services ('SDS' for short) segments. TPO found the analysis done by the assessee to be satisfactory with reference to the packaging sector and made recommendations for upward adjustment only with reference to ITES and SDS segments. With reference to SDS segment, we have alr .....

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TP study. But we find that assessee had at page 183 of its objection before the DRP had seriously objected to the inclusion of these companies for a reason that they were outliers. Assessee had stated that Mold-Tek Technologies Ltd (seg) was having PLI of 133.4% and Vishal Information Technologies Ltd, had a PLI of 59.19%. Assessee had also objected to M/s. Eclerx Services Ltd, for a reason that it was one of the comparables newly selected by the TPO, stating that the PLI of the said company was .....

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our opinion be unfair. 15. For seeking exclusion of these three companies mentioned above, assessee has placed reliance on the decision of Hyderabad Bench of this Tribunal in Capital IQ Information Systems India (P.) Ltd's case (supra ), which was also for the very same assessment year. The said company was also providing ITES service and while considering the said segment, this Tribunal had held as under at paras 14 and 15 of its order dt 23.11.2012 : "Eclerx Services Ltd: 14. The asse .....

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ices. 15. On considering the objections of the assessee in relation to this company, we accept the contention of the assessee that this company cannot be taken as a comparable both for the reasons that it was having supernormal profit and it is engaged in providing KPO services, which is distinct from the nature of services provided by the assessee." 16. Vis-a-vis Mold-Tek Technologies Ltd (seg) in the same decision, this Tribunal held as under at paras 12 and 13: "Mold Tek Technologie .....

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r of performance as there is impact of amalgamation of a company, namely, Techman Tools P. Ltd., with effect from 1st October, 2006 and the concerned company also revised its financial statement, after closure of the previous year. It has been submitted by the Authorised Representative for the assessee that the amalgamation was also approved by the shareholders on 25.1.2008 and the High court has also approved the same on 25.7.2008. In this context, the assessee relied upon the annual report of .....

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se of information technology is only incidental. Lastly, it has been submitted that the company was having supernormal profit at 113%. Therefore, it cannot be taken as a comparable. In support of his contentions, learned Authorised Representative ITA No.l961/Hyd/2011 M/s. Capital IQ Information Systems (India) Pvt. Ltd., Hyderabad 18 for the assessee has relied upon the orders of the DRP for the assessment year 2008-09 and the orders of the ITAT Mumbai Bench in the case of M/s Teva India P. Ltd. .....

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fact that this company has shown super normal profit working out to 113%. The Income-tax Appellate Tribunal, Mumbai Bench in the case of Teva India Pvt. Ltd. (supra ) has observed that companies showing supernormal profit cannot be treated as comparable. The relevant observations of the Tribunal in that case are extracted hereunder for convenience- 32. We have heard the arguments of both the sides and also perused the relevant material on record. It is observed that although a detail submission .....

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ng supernormal profits as compared to other comparable is fully justified. We, therefore set aside the impugned order of the ld. CIT(A) on this issue and restore the matter to the file of the A.O. with a direction to decide the same afresh after taking into consideration the submissions made by the assessee before the learned CIT(A) and keeping in view the Delhi Bench of ITAT in the case of Abode Systems India. Pvt. Ltd. (supra ). In this view of the matter, we accept the contentions of the asse .....

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hird party vendors and has also made significant payments to those vendors. The payments made to vendors towards the data entry charges also supports the fact that the company outsources its works. In the circumstances, it cannot be taken as a comparable to the ITES functions performed by the assessee. Since this company is acting as agent only by outsourcing its works to the third party vendors. In this context, the assessee relied upon the order of the DRP in assessee's own case for the as .....

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ions of the learned Authorised Representative for the assessee, we find that the DRP, in the proceedings for the assessment year 2008- 09 in assessee's own case, after taking note of the composition of the vendor payments of Coral Hub for the last three years, and the fact that it has also commenced a new line of business of Printing on Demand(POD), wherein it prints upon clients request, concluded as follows- "18.4. In view of this major difference in functionality and the business mod .....

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al accounts that these companies outsourced a considerable portion of their business. As the assessee carried out entire operations by itself, in our considered opinion, these two cases were rightly excluded." In view of the observations made by the DRP as well as the decision of the ITAT Mumbai in the case of Maersk Global Service Centre (supra ), we accept that this company cannot be taken as a comparable.' 18. Following the above we direct the TPO to exclude the above comparables fro .....

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