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2015 (10) TMI 945 - ITAT BANGALORE

2015 (10) TMI 945 - ITAT BANGALORE - TMI - Transfer pricing adjustment - selection of comparable - Held that:- Exclude M/s. Accel Transmatics Ltd. (Seg) and M/s. KALS Infosystems Ltd. from the set of comparables from companies in the software development services segment of the assessee.

Following the decision of the ITAT, Hyderabad Bench in the case of CES Pvt. Ltd. [2014 (4) TMI 930 - ITAT HYDERABAD] for Assessment Year 2006-07, we hold and direct that this company i.e. Infosys Tech .....

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mparable to ITES provider as it provides services such as e-publishing knowledge based services, etc.

Spanco Telesystems & Solutions Ltd. and Allsec Technologies Ltd. - these companies are not to be selected on various reasons, we uphold the objections of Assessee and direct the T PO/AO to work out the arithmetic mean of PLI on the balance of companies. Grounds raised by Assessee on this issue are allowed. 16.3.2 Following the aforesaid decision of the ITAT, Hyderabad Bench in the c .....

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ought on record any factual evidence to establish its claim that this company satisfies all the conditions and filters for comparability. In this view of the matter, the contentions of the assessee for inclusion of this company as a comparable are not acceptable and we, therefore, dismiss this ground raised by the assessee.

Computation of deduction u/s. 10A - Held that:- Taking into consideration the decision rendered by the Hon'ble High Court of Karnataka in the case of Tata Elxsi Lt .....

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of interest is consequential and mandatory and the Assessing Officer has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H Ghaswala (2001 (10) TMI 4 - SUPREME Court ) and we, therefore, uphold the action of the Assessing Officer in charging the said interest. The Assessing Officer is, however, directed to recompute the interest chargeable u/s. 234B, 234C and 234D of the Act, if any, while giving effect to this order. - Decided partly .....

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ons of the Dispute Resolution Panel ( DRP ) dt.27.9.2010. 2. The facts of the case, briefly, are as under :- 2.1 The assessee company is engaged in the provision of software development services and ITES to its group companies such as :- (i) Back-end Services to support business process in the areas of operations, technology support, finance and banking; and (ii) Software development services. 2.2 For Assessment Year 2006-07, the assessee filed its return of income on 22.11.2006 declaring income .....

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0,30,865 Software Development Services Rs.45,11,75,241 Reimbursement of expenses paid Rs.29,09,92,785 Reimbursement of expenses received. Rs.1,43,58,174 2.3 The TPO passed an order under Section 92CA of the Act dt.28.10.2009 wherein an aggregate T.P. Adjustment of ₹ 19,52,63,407 was proposed to arrive at the Arm s Length Price ( ALP ) of the international transactions which included an adjustment of ₹ 4,16,14,767 to the software development services segment and an adjustment of ͅ .....

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er of assessment under Section 143(3) rws 144C of the Act vide order dt.11.10.2010 wherein the income of the assessee was determined at ₹ 21,48,14,798 in view of the following additions / disallowances :- (i) Excess claim of deduction u/s. 10A : Rs.38,00,990. (ii) T.P. Adjustment : Rs.19,50,15,017. 3.1 Aggrieved by the final order of assessment for Assessment Year 2006-07 passed u/s.143(3) rws 144C of the Act vide order dt.11.10.2010; the assessee is in appeal before the Tribunal. The asse .....

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to the facts and circumstances of the present case and in any case in violation of the principle of equity and natural justice. 2. The order under section 92CA of the Income tax Act, 1961 ( the Act ) has been passed by the Joint Director of Income Tax (Transfer Pricing - I) ( TPO ) which is without valid jurisdiction and bad in law and therefore liable to be quashed. The Honourable DRP and the learned AO have erred in law and on facts by relying on the said order. 3. The Honourable DRP and the l .....

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provisions of the Act and was not available to the Appellant at the time of complying with the transfer pricing documentation requirements. 5. The Honourable DRP and the learned AO/TPO erred in fact and in law in determining the Arm s Length Price ( ALP ) by adopting the financial data for a single year (i.e. the financial year 2005-06) of the comparables as against multiple year data considered by the Appellant. 6. The learned TPO and the Honourable DRP have erred in determining the arm s lengt .....

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lant based on incorrect reasons. 7. The learned TPO erred in computing the operating margins of the comparable companies at higher levels and determining the operating margin of the Appellant to be lower than the margin of 10.72 percent actually earned by the Appellant, and the Honourable DRP and the learned AO have erred in upholding the same. 8. The learned AO/ Honourable DRP have erred in law and in facts in upholding he TPO s actions of adding recovery of expenditure received by the Appellan .....

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upholding the arm s length margin arrived at by the learned TPO by not considering the lower range of 5 percent from the mean margin as allowed under section 92B(2) of the Act . 11. The Learned AO/ Honourable DRP have erred in upholding the learned TPO s action of not making a further downward margin adjustment to consider the working capital differences between the Appellant and the comparables companies, based on the working capital adjustment workings which were provided by the Appellant. 12. .....

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00 percent deduction of profits under section 10A during the relevant year and therefore there would be not be any motive to shift profits to the other country. 14. The Honourable DRP and the learned AO has erred in law and on facts in concluding that the data communication expenses (being data communication expense and lease line charges of ₹ 2,42,07,786) are to be excluded from the export turnover for the purpose of computation of relief under the section 10A of the Act. 15. The Honourab .....

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the appellant. 17. The Honourable DRP and the learned AO/TPO has erred in law and on facts in levying and wrongly computing interest under section 234B, 234C and 234D of the Act. 3.3 The Additional Grounds of appeal raised are as under :- 1. The learned DRP/A.O./TPO have erred in selecting companies (including Spanco Limited (formerly known as Spanco Telesystems & Solutions Ltd.) Allsec Technologies Ltd. (ITES), which are not comparable to the appellant. These companies cannot be retained as .....

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sion of services in two segments, namely Information Technology Enabled Services (ITES) and Software Development Services. For the year under consideration, the assessee reported the following international transactions :- Back-end Services (ITES) Rs.1,24,40,30,865 Software Development Services Rs.45,11,75,241 Reimbursement of expenses paid Rs.29,09,92,785 Reimbursement of expenses received. Rs.1,43,58,174 4.2 The segmental results reported by the assessee during the year under consideration are .....

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fore us submitted thathe would only be pressing the ground at S.No.6 which is with regard to the claim for the exclusion of certain comparables from the TPO s list and inclusion of certain companies in the list of comparables as sought for by the assessee. In this context, the learned Authorised Representative submitted that the concise grounds rasied at S.Nos.1 to 5 and 7 to 13 are not being pressed in this appeal. These grounds are therefore rendered infructuous and are accordingly dismissed. .....

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49 companies as comparable to the assessee. The average operating profit margin of these 49 comparables was computed at 12.80%. As the average mean of the comparables was within the 5% range, as compared to the assessee's margin at 10%, the assessee conducted that its international transactions of the software development service segment were at arm s length. 6.2 The TPO examined the assessee's T.P. Report and rejected the same for the various reasons enumerated in the T.P. order. The T .....

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ystems International Ltd. 79.42 22.20 9. Sasken Communication Ltd. (Seg) 240.03 13.90 10. Tata Elxsi Ltd. (Seg.) 188.81 27.65 11. Lucid Software Ltd. 1.02 8.92 12. Mediasoft Solutions P Ltd. 1.76 6.29 13. R S Software(India) Ltd. 91.57 15.69 14. SIP Technologies Ltd. (Seg) 6.53 3.06 15. Bodhtree Consulting Ltd. 5.32 15.99 16. Accel Transmatics Ltd. (Seg) 8.02 44.07 17. Synfosys Business Solutions Ltd. 4.49 10.61 18. Megasoft Ltd. 56.15 52.74 19. Lanco Global Solutions Ltd. 35.63 5.27 20. Flextro .....

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Adjustment 0.72% Adjusted Margin 19.96% Operating Cost 41,39,81,454. ALP @ 119.96% of operating cost 49,66,12,153 Price received 45,49,97,386 Shortfall being adjustment u/s.92CA 4,16,14767. 6.4 Based on the above computation, the TPO proposed an adjustment of ₹ 4,16,14,767 for the international transactions in the software development services which was incorporated in the assessment order by the Assessing Officer. The assessee filed its objections before the DRP. The DRP rejected the adju .....

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iance upon. We now proceed to consider the comparability of the individual companies objected to by the assessee. COMPANIES IN THE TPO s LIST OF COMPARABLES WHICH ASSESSEE SEEKS EXCLUSION. 7.0 The assessee has put forth submissions for exclusion of the following companies from the TPO s list of comparables :- i) Accel Transmatics Ltd. (Seg.) ii) Infosys Technologies Ltd. iii) KALS Info Systems Ltd. iv) Megasoft Ltd. v) Tata Elxsi Ltd. In support of the assessee's contentions for exclusion of .....

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not a pure software development service company but rather it is a product development company and has a different functional profile from the assessee who is providing only software development to its AEs. It is submitted that this company is engaged in business application products in the healthcare and education segments which operate the products Healthspace and Prodigy respectively for which it received and would continue to receive royalty. It is also submitted that in the period under con .....

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les for which appropriate segmental information is not available. 8.3 In support of its contention for exclusion of these two companies from the list of comparables, on the grounds that they are functionally different from the assessee in the case on hand who is a provider of software development services to its AEs, the learned Authorised Representative placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) for Assessm .....

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ssment Year 2006-07 has excluded both these companies from the list of comparables from companies in the business of software development services since both these companies are functionally different and at paras 11 to 13 of its order, the co-ordinate Bench has held as under :- 11. Improper selection of comparables: It was submitted by the learned counsel for the Assessee that the following 2 companies are not functionally comparable with that of the Assessee. a) KALS Information Systems Limite .....

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rmation Systems Ltd. As far as this company is concerned, the contention of the assessee is that the aforesaid company has revenues from both software development and software products. Besides the above, it was also pointed out that this company is engaged in providing training. It was also submitted that as per the annual report, the salary cost debited under the software development expenditure was Q 45,93,351. The same was less than 25% of the software services revenue and therefore the sala .....

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to its inclusion on the basis that functionally the company is not comparable. With reference to pages 185-186 of the Paper Book, it is explained that the said company is engaged in development of software products and services and is not comparable to software development services provided by the assessee. The appellant has submitted an extract on pages 185-186 of the Paper Book from the website of the company to establish that it is engaged in providing of I T enabled services and that the sai .....

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drawn conclusions on the basis of information obtained by issue of notice u/s.133(6) of the Act. This information which was not available in public domain could not have been used by the TPO, when the same is contrary to the annual report of this company as highlighted by the Assessee in its letter dated 21.6.2010 to the TPO. We alsofind that in the decision referred to by the learned counsel for the Assessee, the Mumbai Bench of ITAT has held that this company was developing software products .....

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e rejected as comparable. The relevant observations of DRP as extracted by the ITAT in its order are as follows: In regard to Accel Transmatics Ltd. the assessee submitted the company profile and its annual report for financial year 2005-06 from which the DRP noted that the business activities of the company were as under. (i) Transmatic system - design, development and manufacture of multi function kiosks Queue management system, ticket vending system (ii) Ushus Technologies - offshore developm .....

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at the company was functionally different from the assessee company as it was engaged in the services in the form of ACCEL IT and ACCEL animation services for 2D and 3D animation and therefore assessee s claim that this company was functionally different was accepted. DRP therefore directed the Assessing Officer to exclude ACCEL Transmatic Ltd. from the final list of comparables for the purpose of determining TNMM margin. Besides the above, it was pointed out that this company has related party .....

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Ltd (supra) where the assessee was software developer. The Tribunal, in the said decision referred to by the ld. counsel for the assessee, has accepted that this company was not comparable in the case of the assessees engaged in software development services business. Accepting the argument of the ld. counsel for the assessee, we hold that the aforesaid company should be excluded as comparables. 13. The facts and circumstances under which the aforesaid companies were considered as comparable is .....

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. Ltd. for Asst. Year 2006-07 (supra), we direct the Assessing Officer / TPO to exclude M/s. Accel Transmatics Ltd. (Seg) and M/s. KALS Infosystems Ltd. from the set of comparables from companies in the software development services segment of the assessee. 9. Infosys Technologies Ltd. 9.1 The learned Authorised Representative of the assessee contended that this company is a giant company, an industry leader with significant brand value, brand related profits and on site presence and therefore i .....

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.2 Per contra, the learned Departmental Representative supported the orders of the TPO in including this company in the list of comparables to the assessee. 9.3.1 We have heard both parties and perused and carefully considered the material on record; including the judicial pronouncements cited. We find that the Hyderabad Bench of the ITAT in the case of CES Pvt. Ltd. (supra) for Assessment Year 2006-07 has excluded this company i.e. Infosys Technologies Ltd., from the list of comparables to comp .....

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to Soft ware Pvt. Ltd. in IT A No. 1196/Hyd/2010 (32 T axmann.com 21). 17. we have considered various objection in the light of material placed before us. Various co-ordin ate benches have already considered the above object ions on similarly pla ced sof tware development companies. Accord ingly, these objections of Assessee are accepted and the T PO directed to exclude the above companies and re work out arith metic mean of PLI. 9.3.2 Following the decision of the ITAT, Hyderabad Bench in the c .....

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elopment services to its AEs. It is submitted that this company has three divisions; one of which, is, XIUS Division is completely into product development and has various products such as XIUS WISE, XIUS Voise, XIUS Roaming, XIUS Infinet, etc. customises its own products and only passes on right in the form of licenses. The learned Authorised Representative also submitted that this company fails the Related Party Transaction ( RPT ) filter of 15% and is a super profit company. In support of the .....

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of the TPO in including this company in the list of comparable companies to the assessee in the case on hand. 10.3.1 We have heard both parties and perused and carefully considered the material on record; including the judicial pronouncement cited. We find that the Hyderabad bench of the ITAT in the case of CES Pvt. Ltd. (supra) for Assessment Year 2006-07, has held that this company is not to be considered as comparable to a company merely providing software development services as is the asse .....

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we ver, Megasof t Ltd has a diff erent f inancial year endin g compared to Assessee company i.e., December Year ending and ought n ot to have considered it as a c omparable. He relied on the follo win g c ase law: 1. Hyderabad ITAT order in the case of Capital IQ Information Systems (India) Ltd. vide para 15 - 32 T axmann.com 21. 2. Mumbai ITAT order in Teva India Pvt. Ltd. Vs. DCIT Mum bai. 3. Dy. CIT Vs. America l E xpres s (India )(P ) Ltd. [2012] 135 IT D 211 (Delhi)(T rib) 17. we have cons .....

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company, namely, Megasoft Ltd. is to be excluded from the list of comparable companies for software development services segment of the assessee. 11. Tata Elxsi Ltd. 11.1 The learned Authorised Representative of the assessee submitted that this company is a product company and it has several core practices which encompass product design services, industrial design and engineering services for automotive and consumer goods; animation and visual effects including content development and system int .....

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he case of Ariba Technologies India Pvt. Ltd. in IT(TP)A No.1179/Bang/2010 dt.19.12.2014 for Assessment Year 2006-07. 11.2 Per contra, the learned Departmental Representative supported the order of the TPO in including this company in the list of comparable companies to the assessee in the case on hand. 11.3.1 We have heard both parties and perused and carefully considered the material on record; including the judicial pronouncement cited by the assessee. We find that a coordinate bench of this .....

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f the software service provider such as the Assessee was considered by the Mumbai Bench of this Tribunal in the case of Logica Pvt.Ltd. IT (TP) 1129/Bang/2011 AY 07-08) wherein on the comparability of the aforesaid company, the Tribunal held as follows:- 14. As far as comparable at Sl.No.6 & 24 are concerned, the comparability of the aforesaid two companies with that of the software service provider was considered by the Mumbai Bench of the Tribunal in the case of Telcordia Technologies Indi .....

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essee as have been narrated in para 6.6 above. Even the segmental details for revenue sales have not been provided by the TPO so as to consider it as a comparable party for comparing the profit ratiofrom product and services. Thus, on these facts, we are unable to treat this company fit for comparability analysis for determining the arms length price for the assessee, hence, should be excluded from the list of comparable parties. 15. In view of the above, the ld. counsel for the assessee fairly .....

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upra), we hold and direct that this company, namely, Tata Elxsi Ltd. shall be excluded from the set of comparable companies for the software development segment of the assessee. I.T. Enabled Services ( ITES ) 12.1 The assessee conducted a T.P. Study for the international transactions by separately bench marking the transactions related to the ITES segment and adopted TNMM as the MAM. Based on the study conducted and the comparability analysis conducted, the assessee selected a set of 11 companie .....

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P. order. The TPO then conducted his own search process adopting various criteria/filters and finally selected the following 13 companies as the final set of comparables :- S.No. Company Name Sales (Rs. Cr.) OP to Total Cost % 1. Maple eSolutions Ltd. 7.43 32.66 2. Allsec Technologies Ltd. 92.25 28.51 3. Datamatics Financial Services Ltd.(Seg) 2.31 24.99 4. Transworks Information Services Ltd. 163.30 19.56 5. Cosmic Global Ltd. (Seg) 3.11 16.03 6. Vishal Information Technologies Ltd. 25.64 48.03 .....

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argin 24.00 12.3 The TPO thereafter proceeded to determine the ALP of the international transactions in the ITES segment by applying the arithmetic mean of the final list of comparable companies chosen by him. After allowing working capital adjustment of 0.81% to the assessee, the TPO computed the ALP as under :- Particulars Amount (Rs.) Arm s Length Mean Margin on cost 24.00 % Less : Working capital adjustment 0.81% Adjusted Margin 23.19% Operating cost 114,31,24,876 ALP 123.91% of operating co .....

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s selected by the TPO. In consequence thereof, the Assessing Officer passed the impugned final order of assessment for Assessment Year 2006-07. Aggrieved by the impugned order of assessment, the assessee is in appeal before the Tribunal. 12.5 We have heard both parties and perused and carefully considered the material on record, i.e. the impugned order of assessment, the DRP s directions, the TPO s order under Section 92CA of the Act, the submissions of both the learned Departmental Representati .....

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e TPO s list of comparables. i) Maple eSolutions Ltd. ii) Datamatics Financial Services Ltd. iii) Vishal Information Technologies Ltd. iv) Asit C Mehta Financial Services Ltd. v) Goldstone Infratech Ltd. vi) Apex Knowledge Solutions Pvt. Ltd. In support of the assessee s contentions for excluding the above companies from the list of comparables, the learned Authorised Representative for the assessee placed reliance on the decision of the co-ordinate bench in the case of Ariba Technologies India .....

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st of comparables to the assessee as it fails the RPT filter as it has RPT of 49% of its income. 13.2.3 in the case of Vishal Information Technologies Ltd., it was submitted that this company is functionally different from the assessee in the case on hand, as it was engaged in e-publishing services. It was also submitted that this company has a different business model as it has outsourced its ITES and therefore cannot be comparable to the assessee. 13.2.4 In the case of Asit C Mehta Financial S .....

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e. It was submitted that in view of the above, this company cannot be treated as comparable to the assessee. 13.2.5 In the case of Goldstone Infratech Ltd., it was submitted that this company is functionally different from the assessee in the case on hand as it operates by leasing seats to other companies on hire basis and the income from such leasing activity is recognized as part of its BPO income. It was further submitted that this company i.e. Goldstone Infratech Ltd., had diminishing revenu .....

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ding the above five companies as comparables to the assessee in the case on hand. 13.4.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncement relied on by the assessee. We find that the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra) after considering the comparability of the above five companies to companies rendering ITES to its AEs as in the assessee in the case on han .....

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in the case of HSBC Electronic Data Processing India Ltd. Vs. ACIT, ITA No.1624/Hyd/2010 by order darted 28.6.2013 considered comparability of these companies in the case of a company engaged in rendering IT enabled services to its AE similar to that of the Assessee in the present case. The tribunal held that the aforesaid companies are not comparable. The following were the relevant observations of the Tribunal. "8. The first objection is with reference to selection of comparable data by t .....

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ch as employee cost and on-site revenue filter. It was submitted that employee cost forms a major portion of the total cost of BPO services and in the assessee s case employee cost is 62% of the total cost, whereas in the selected company the employee cost is less than 2%, which indicates that most of the work was outsourced and the out-sourcing cost was at 88.64% of the operating cost. It was further submitted that the ITAT Bangalore in the case of First Advantage Off-shore Services (ITA No.125 .....

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ejected this company as a comparable (name changed to Coral Hub Ltd.), vide para 18 of the order, wherein ultimately, it was decided that there is major difference in functionality and the business model and the DRP Bench was of the view that Coral Hub (formerly known as Vishal Information Technology Ltd.) was not a suitable comparable and needs to be dropped from the final set of comparables. Based on the above submissions, it was submitted that this company cannot be used as a comparable and h .....

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analysed and rejected this company as comparable, due to the reason that it has outsourced a considerable portion of its business and it is functionally different. This factor was also approved by the DRP in assessee s own case in the later year, as can be seen from the copy of the order placed on record, for assessment year 2008-09. In view of this, we direct the Assessing Officer to exclude this company from the list of comparables. Goldstone Infratech Ltd 10. The assessee s objection for inc .....

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ss model of the above company is different from that of the assessee. In this case, the foreign exchange revenue is less than 1% of the total turnover. Therefore, it fails the filter provided by the Assessing Officer, on the basis of the foreign exchange earnings. Further, the Revenue from BPO is failing over a period of three years. This issue was considered by the coordinate Bench (Mumbai Bench) of the Tribunal in the case of Stream International Services Ltd.(supra) wherein it was considered .....

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rore and Insulator at ₹ 12.23 crore. The break up of such revenue of Goldstone Teleservices Limited has been provided at page 236 of the paper book. Schedule forming part of the annual accounts of Goldstone Teleservices Limited divulges earnings in foreign currency at ₹ 4.24 lakh. Such detail is available at page 239 of the paper book. When we compare earning in foreign currency at ₹ 4.24 lakh with the earnings of BPO at ₹ 5.02 crore or for that purpose of the entity as a .....

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ty Transactions filter. It was submitted that RPT exceeds 25% of the sales and therefore, to be excluded. The assessee relied on the decision of the coordinate Bench of the Tribunal (Mumbai Bench) in the case of Stream International Services (supra), wherein, wherein with reference to this comparable company, it was held as under : 11. The first is M/s. Datamatics Financial Services Limited. It can be observed that the TPO applied filter of Companies with less than 25% related party transactions .....

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, 1961 showed one major transaction with Datamatics Limited towards Reimbursement of expenses at ₹ 99.14 lakh. The learned AR contended that the transactions of Datamatics Financial Services Limited with other AEs amounted to ₹ 14.31 lakh making total of transactions with the AEs at ₹ 1.13 crore. It was submitted that the percentage of transaction with related parties is much more than 25%, being, the filter adopted by the TPO himself and hence the same should be excluded. 12. .....

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3. We do not find any force in the contention advanced by the learned Departmental Representative for the exclusion of transactions with Datamatics Limited towards Reimbursement of expenses from the overall transactions entered into by Datamatics Financial Services Ltd. with its AEs. Section 92F(v) defines transaction in the context of transfer pricing provisions to include an arrangement, understanding or action in concert whether or not it is formal or in writing or whether or not it is intend .....

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ing of section 92B should be ignored simply because they represent reimbursement of expenses. If the contention of the Id. DR that the reimbursement of expenses not involving profit element should not be construed as a transaction, is taken to a logical conclusion, it would mean that all such dealings will cease to be transactions for the purposes of Chapter-X of the Act. Once these dealings are not considered as transactions , these will also cease to be international transactions, going out of .....

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enses was without any markup. As the so called comparable case of Datamatics Financial Services Limited was included by the TPO in the final list of comparables, in our considered opinion, the same is liable to be excluded as it involves related party transactions at much higher level, as against the filter adopted by the TPO himself, being companies with less than 25% related party transactions. We order accordingly. In view of the above, since this company fails in this filter adopted by the T .....

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r in assessment year 2007-08, with reference to the above company. 12.1. We have considered the rival sub missions. We agree with the objections of the assessee. In the case of Stream International Services P. Ltd. (supra), it is held with reference to this company as under : 18. We are unable to uphold the contention raised by the learned Departmental Representative. It is apparent from two orders passed - one by the Delhi Bench and the other by the Hyderabad Bench of the Tribunal - that the ca .....

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ollowing the precedents, we direct the exclusion of this case from the final list of comparables." Since the DRP in assessee s own case for assessment year 2007-08 also considered and excluded this company, we uphold the assessee s objection in this regard and direct the Assessing Officer to exclude this company from the comparables adopted. Nucleus Netsoft & GIS(India) Ltd. 13. The last objection was with reference to the above company, which is on similar facts as that of Vishal Infor .....

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employee costs for the year ending 31st March, 2005, the employee cost has increased to ₹ 132.59 lakhs. Further, the data processing charges is also to the extent of ₹ 1.04 crores, which indicates that the assessee is outsourcing the work. Accordingly, it cannot be selected as a comparable. Due to amalgamation during the year, the assessee s business model has changed and because of employee cost filter also, this comparable has to be excluded. 13.1 After considering the rival submi .....

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entical to the case decided by the Hyderbad Bench of ITAT and that of the case of the Assessee. Respectfully following the decision of the Hyderbad Bench of ITAT, we direct the TPO to exclude the aforesaid companies from the list of comparable while arriving at the arithmetic mean of comparable. The relevant grounds of appeal of the Assessee are allowed. 13.4.2 Following the decision of the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. for Assessment Year 2 .....

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including data conversion, data entry imaging, etc. is functionally different from an ITES provider, as is the assessee in the case on hand, and therefore prayed that this company be excluded from the list of comparables. In support of this proposition, the learned Authorised Representative of the assessee placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra). 14.2 Per contra, the learned Departmental Representative s .....

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. in the ITES Segment and held that it is not functionally comparable to ITES provider as it provides services such as e-publishing knowledge based services, etc. At paras 26 & 27 of its order, the co-ordinate bench has held as under :- 26. The learned counsel further submitted that the comparable company chosen by the TPO viz., Apex Knowledge Solution Pvt.Ltd., should be excluded from the list of comparable companies chosen by the TPO. In this regard our attention was drawn to the decision .....

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in para-16 of its order held that the said company is not functional comparable as it provides services such as E-publishing knowledge based services etc. In view of the above, we direct the TPO to exclude the aforesaid company alsofrom the final list of comparable companies for the purpose of determining the ALP. 14.3.2 Following the aforesaid decision of the co-ordinate bench of this Tribunal in the case of Ariba Technologies India Pvt. Ltd. (supra), for Assessment Year 2006-07, we hold and d .....

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nologies Ltd. (ii) That the TPO had erred in not selecting Genisys International Corp. Ltd. as a comparable to the assessee. 16.0 Ground No.1 : Spanco Telesystems & Solutions Ltd.( Spanco ) & Allsec Technologies Ltd. 16.1 It is the submission of the assessee that the TPO has selected/retained the two companies, namely, Spanco Telesystems & Solutions Ltd.( Spanco ) & Allsec Technologies Ltd., as comparable companies to the assessee only because they were selected as comparables by .....

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that these two companies are to be excluded from being adopted as comparables to companies in the ITES sector in the year under consideration, the learned Authorised Representative placed reliance on the decision of the ITAT, Hyderabad Bench in the case of CES Pvt. Ltd. (supra) for Assessment Year 2006-07 wherein Spanco was excluded from the list of comparables on the ground that it had acquired Intelenet BPO Services Ltd. in Nov., 2005 and was also a super profit making company, and Allsec Tec .....

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of CES Pvt. Ltd. (supra) has excluded these two companies from the set of comparables for the ITES segments holding as under at paras 14(4), 14(6) and 15 of its order :- 14……… 4 . Spanco Ltd. The learned counsel for the assessee submission is to exclude the said company from the list of comparables on the ground that this company acquired Intelenet BPO Services Pvt. Ltd. in No v. 2005 and also a super normal profit making comp any. He re lied on the following case law: 1. B .....

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hat this company is ha vin g super normal profits. Further it has been experiencing extra ordinary e vents. During the F Y 2005-06, this company had gone for a IPO during the relevant previous year and also the company h ad entered into a s hare purchase agreement with shareholder of B2K Corporation Pvt. Ltd., which is engaged in the business of inbound and outbound voice, email chat services and information technology services. He relied on the following case law: 1. Bangalore ITAT order in the .....

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t the arithmetic mean of PLI on the balance of companies. Grounds raised by Assessee on this issue are allowed. 16.3.2 Following the aforesaid decision of the ITAT, Hyderabad Bench in the case of CES Pvt. Ltd. for Assessment Year 2006-07 (supra), for the factual reasons cited therein and also brought before us, we hold and direct that these two companies namely, Spanco and Allsec Technologies Ltd. are to be excluded from the set of comparable companies for the ITES segment of the assessee. 17. G .....

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efore, this company did not come to be selected in the search process of either the TPO or the assessee. That being the case, we find that the assessee has not brought on record any factual evidence to establish its claim that this company satisfies all the conditions and filters for comparability. In this view of the matter, the contentions of the assessee for inclusion of this company as a comparable are not acceptable and we, therefore, dismiss this ground raised by the assessee. 18. Ground N .....

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