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

2016 (6) TMI 589 - ITAT DELHI

2016 (6) TMI 589 - ITAT DELHI - TMI - Addition on account of transfer pricing adjustment - selection of comparable - Held that:- Airline Financial Support Services (I) Ltd. - As find from the Annual report of this company, which is available on page 107 onwards of the paper book, that as against its gross revenue from service fees amounting to ₹ 29.32 crore, there is receipt of revenue from its associated enterprises to the tune of ₹ 9.31 crore. This shows that the percentage of RPT .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

Ltd. and Spanco Telesystems and Solutions Ltd. - Held that:- When we compute the percentage of Personnel cost to Total cost on the basis of these two figures, there emerges figure of 45%. If we go ahead with the correct ratio of the assessee’s Personnel cost to total cost at 45%, even the filter applied by the TPO between 48% to 53.5% becomes erroneous because that was based on the TPO’s calculation of the assessee’s ratio of Personnel expenses to total expenses at 52.11%, which itself is wanti .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mpugned order on this score is set aside and the matter is remitted to the AO/TPO for a fresh determination of the comparability or otherwise of CS Software Enterprises Ltd. and Spanco Telesystems and Solutions Ltd. - ITA No.1382/Del/2012 - Dated:- 16-5-2016 - SHRI R. S. SYAL, AM AND SHRI KULDIP SINGH, JM For the Assessee : Shri S. D. Kapila, Advocate For the Department : Dr. B. R. R. Kumar, Sr. DR ORDER PER R. S. SYAL, AM: This appeal by the Revenue is directed against the order passed by the C .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ee filed its return declaring income of ₹ 93,784/- accompanied by an audit report in Form No. 3CEB, indicating four international transactions, including BPO and Support services. The assessee selected Transactional Net Margin Method (TNMM) as the most appropriate method with the Profit level indicator (PLI) of Operating Profit to Total Cost (OP/TC). Its own profit margin was calculated at 15.62%. The assessee selected certain companies as comparable. Considering the multiple year data, th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s chosen by the assessee for the current year alone by discarding the use of multiple year data by the assessee. It was thereafter noticed that the ratio of the assessee s Personnel expenses to Total expenses was 52.11% and that of Depreciation to Total expenses was 14.36%. He adopted filter of Personnel cost to Total cost in the range of 48% to 58.3% for selection of comparables. Similarly, filter of Depreciation to Total costs was also applied. In applying such filters, the TPO reduced the fin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nd computed total income of the assessee at ₹ 2.87 crore. The assessee challenged the assessment order before the ld. CIT(A), who deleted the transfer pricing addition by excluding Airline Financial Support Services (I) Ltd. from the final list of three comparables drawn by the TPO and treating two more companies as comparable, namely, CS Software Enterprises Ltd. and Spanco Telesystems and Solutions Ltd. The Revenue is aggrieved against the above alterations made by the ld. CIT(A) in the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hree companies, we consider it expedient to discuss the functional profile of the assessee, as has been given in the Transfer pricing study report, as under:- Insurance Industry Property & Casualty and Life Insurance-Client Administration Services; Agency Administration Services; Claims Processing; New Business Processing; New Product Launch and End-to-end annuity processing - closed/passive block processing; Application service provider; Healthcare Industry Payer Claim Entry Form; Simple Cl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

uation Lettering; Campaign Design & Management Pre charge-off through Recovery Contact Calls Reminder Calls; Automated & Manual Skip Tracing Payment Plan Arrangement & Settlements Payment Processing; Put-back Management; Proprietary Scoring; Litigation Tracking Financial Reporting: Customized Processes to meet client s portfolio goals. 5.2. An overview of the functional profile of the assessee, seen in the context of the overall group activities, it becomes vivid that the customers i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

job descriptions, salary levels, fringe benefits, vacation policies and similar human resource functions. With the above understanding of the functional profile of the assessee, we now espouse the three companies as discussed supra for considering their comparability or otherwise. (i) Airline Financial Support Services (I) Ltd. 6.1. Since this company was chosen by the assessee itself as a comparable, there was no occasion for the TPO to discuss the functional profile of this company because it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

usion of this company. 6.2. We have heard the rival submissions and perused the relevant material on record. We are disinclined to sustain the preliminary objection taken by the ld. DR that the assessee should have restrained from challenging the inclusion of this company in the list of comparables before the ld. CIT(A) as it was its own comparable and further no objection was taken about the inclusion of this company in the list of comparables during the course of proceedings before the TPO. It .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ontext of the transfer pricing, we find that if an assessee fails to report an otherwise comparable company, then the TPO is obliged to include it in the list of comparables, and in the same manner, if an assessee wrongly reports an incomparable case as comparable in its TP study and then later on claims that it should be excluded, then, there should be nothing to forbid the assessee from claiming so, provided the Authority is satisfied that the company so originally reported as comparable is, i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

clusion of Airline Financial Support Services (I) Ltd. from the list of comparables. Rule 10B(1)(e)(ii) and (iii) talk of comparing the net profit margin realized by the enterprise from international transaction with the similar net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction. An uncontrolled transaction has been defined in Rule 10A(a) to mean: a transaction between enterprises other than associated enterprises, whether reside .....

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 if the related party transactions of such company are more than 25%, then, it should be considered as a controlled transaction and the company should be excluded from the list of comparables. If, however, the related party transactions are less than 25%, then, notwithstanding the fact that there are certain related party transactions, but, on the overall scenario, such a company can be considered as comparable. 6.4. Adverting to the facts of this company, we find that the ld. CIT(A) has exclu .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tream International Services Pvt. Ltd. Vs. ACIT (IT) (2013) 141 ITD 492 (Mum.). Even though the TPO has not expressly applied any RPT filter, but, the fact of the matter remains that the very inclusion of a company in the list of comparables depends upon the fact that it should be a comparable uncontrolled transaction. 6.5. Reverting to our point, we find from the Annual report of this company, which is available on page 107 onwards of the paper book, that as against its gross revenue from servi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

arables. Ergo, we uphold the action of the ld. CIT(A) in excluding Airline Financial Support Services (I) Ltd. from the list of comparables. The impugned order is upheld on this issue. (ii) & (iii) CS Software Enterprises Ltd. and Spanco Telesystems and Solutions Ltd. 7.1. The assessee considered these two companies as comparables. However, the TPO rejected the same impliedly on the basis of two filters applied by him, namely, Personnel cost to Total cost in the range of 48% to 53.5% and Dep .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

against the inclusion of these two companies. 7.2. We have heard the rival submissions and perused the relevant material on record. It is manifest that the ld. CIT(A) has ordered for the inclusion of these two companies simply on the ground that these were considered as comparable in subsequent year. This fact, in our considered opinion, is not decisive in deciding the comparability for the year under consideration. There can be change in the functional profile of a company from one year to anot .....

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 that of the assessee. 7.3. At the same time, we note that the TPO has noted on page 14 of his order that the ratio of the assessee s Personnel expenses to Total expenses is 52.11% and that appears to be the reason for his applying filter of 48% to 53.5%. On a careful perusal of the assessee s Profit & Loss Account, which is available on page 176 of the paper book, it is vivid that the assessee incurred Personnel expenses to the tune of ₹ 10,97,53,391/- and Total expenses stand at & .....

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