9911796707
TMI Blog2016 (6) TMI 790X X X X Extracts X X X X X X X X Extracts X X X X ..... then exercise has to be carried out afresh at the level of AO/TPO. Therefore, first we take up this issue. 3. Brief facts of the case are that the SNL India was incorporated on 24.9.2004. It is a wholly owned subsidiary of SNL US. The company is involved in gathering, collating, organizing, arranging, storing and transmitting all types of financial information in written, electronic or any other medium through database, web applications and analytical models and to act as consultant, counselors on all matters relating to finance, trade and industry. It has filed its return of income on 2.9.2009 declaring total income at Rs. 26,252/-. The ld.AO has noticed that the assessee had entered into international transaction with its associate enterprise, and therefore, ALP of that transaction has to be determined. A reference under section 92CA(1) of the Act was made by the AO to the TPO vide letter No.ACIT(OSD)/Cir.8/TP/SNLFIPL/2011-12 dated 16.8.2011. The details of the international transaction with the AE are as under: Nature of services Associate Enterprise (AE) Amount (Rs.)` Data Analysis and Data Entry SNL Financial LC, One SNL Plaza, Charlottesville VA 22902, USA 13,08,92,01 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back to the file of the AO for re-adjudication. 6. On other hand, the ld.CIT-DR, filed written submissions and contented that this plea was raised before the DRP, but the DRP has rejected this plea on the ground that the assessee has categorised itself as KPO. Therefore, in this year, it cannot be pleaded that it be treated as BPO. He placed reliance on the orders of the TPO as well as DRP on this issue. 7. We have considered rival contentions and gone through the record carefully. The Hon'ble Delhi High Court has propounded the distinction between KPO and BPO. The Hon'ble High Court has considered the definition/ scope of meaning of KPO or BPO provided in Safe Harbour Rules. The KPO services are understood as the high-end IT solutions in terms of value addition, whereas, the BPO is a low-end service provider. Analysis made by the Hon'ble High Court is worth to note. It reads as under: "34. We have reservations as to the Tribunal's aforesaid view in Maersk Global Centers (India) Pvt. Ltd. (supra). As indicated above, the expression 'BPO' and 'KPO' are, plainly, understood in the sense that whereas, BPO does not necessarily involve advanced skills and knowledge; KPO, on the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are clearly in the nature of lower-end ITeS such as Call Centers etc. for rendering data processing not involving domain knowledge, inclusion of any KPO service provider as a comparable would not be warranted and the transfer pricing study must take that into account at the threshold. 36. As pointed out earlier, the transfer pricing analysis must serve the broad object of benchmarking an international transaction for determining an ALP. The methodology necessitates that the comparables must be similar in material aspects. The comparability must be judged on factors such as product/service characteristics, functions undertaken, assets used, risks assumed. This is essential to ensure the efficacy of the exercise. There is sufficient flexibility available within the statutory framework to ensure a fair ALP. 37. Applying the aforesaid principles to the facts of the present case, it is once again clear that both Vishal and eClerx could not be taken as comparables for determining the ALP. Vishal and eClerx, both are into KPO Services. In Maersk Global Centers (India) Pvt. Ltd. (supra), the Special Bench of the Tribunal had noted that eClerx is engaged in data analytics, data proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note that in the case of Maersk Global Centers (India) Pvt. Ltd. (supra), the DRP itself had accepted the objection of the Assessee and had excluded Vishal as a comparable for the reason as quoted below:- "... that it had a very low employment cost and very high cost on account of venture payment, which suggested that its business model was that of an outsourcing company and in view of this functional difference, Vishal Ltd. could not be considered as a comparable." 40. The Assessee had also sought the exclusion of eClerx and Vishal on the ground that both the companies had returned supernormal profits. Whereas the operating margins (operating margin over total cost) in case of Vishal and eClerx were 50.68% and 65.88% respectively, the PLIs of all other comparables were in the range of 2.2% to 24%. In our view, it would not be apposite to exclude comparables only for the reason that their profits are high, as the same is not provided for in the statutory framework. The OECD Guidelines suggest that a quartile method be adopted which excludes entities that fall in the extreme quartiles for comparability. However, neither Chapter X of the Act nor the Rules made by CBDT provide for ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to comparability factors as indicated under rule 10B(2) of the Income Tax Rules, 1962. Comparability analysis by TNMM method may be less sensitive to certain dissimilarities between the tested party and the comparables. However, that cannot be the consideration for diluting the standards of selecting comparable transactions/entities. A higher product and functional similarity would strengthen the efficacy of the method in ascertaining a reliable ALP. Therefore, as far as possible, the comparables must be selected keeping in view the comparability factors as specified. Wide deviations in PLI must trigger further investigations/analysis. 44. Consideration for a transaction would reflect the functions performed, the significant activities undertaken, the assets or resources used/consumed, the risks assumed. Thus, comparison of activities undertaken/functions performed is important for determining the comparability between controlled and uncontrolled transactions/entity. It would not be apposite to ignore functional dissimilarity only for the reason that its impact may be reduced on account of using arithmetical mean of the PLI. The DRP had noted that eClerx was functionally dissimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and non-financial information available from various public sources, ii. Data assimilation and sorting: In this step, the information so collected is sorted into different categories using computerized applications, iii Data entry and validation: In this step, the sorted information is entered into the database using the software, developed and provided by the associate enterprise. The said data is fed in the format as specified by the associate enterprise, iv. Quality reviewing: In this step, the data is so collected, sorted and entered is examined and reviewed for errors. v. Data Delivery. In this final step, the reviewed data is uploaded on servers maintained by the associate enterprise in US. 3.1.1 Upon analysis of the above functions being carried out by the assessee, it can be found that the services being rendered by the assessee were mainly and generally in the nature of "data processing", ''data mining" and "data search integration and' analysis" which are covered under the definition of "Information technology enabled services", as defined in rule 10TA(e) of the IT Rules, 1.962,Consequently the transactions for which the claim of safe harbour is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s associated enterprise which not only has the capability to control or supervise but also actually controls or supervises the activities carried out through its strategic decisions to perform core functions as well as by monitoring activities on a regular basis.________ The assessee works on the specifications for the data feeding, provided by the j associate enterprise and it is subject to ' monitoring in respect of the works carried out. The associate enterprise provides training to the employees of the assessee for the new processes/specifications introduced in respect of the data feeding activities. The eligible assessee does not assume or has no economically significant realised risks, and if a contract shows that the foreign principal is obligated to control the risk but the conduct shows that the eligible assessee is doing so, the contractual terms shall not be the final determinant The assessee does not bear the risk related to marketing, utilization, of employees, service liability, credit and collection risk et cetera. As per the terms of cdntract and the conduct also, it was not found that the assessee was bearing any such risk, even though, the assessee is beari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period for which the option was exercised by the assessee, he shall make a reference to the Transfer Pricing Officer for determination of eligibility of the assessee or the international transaction or both for the purpose of safe harbour. Explanation.-For purposes of this sub-rule the facts and circumstances include:- (a) functional profile of the assessee in respect of the international transaction; (b) the risks being undertaken by the assessee; (c) the substantive contractual conditions governing the role of the assessee in respect of the international transaction; (d) the conduct of the assessee as referred to in sub-rule (2) or subrule (3) of rule 10TB; or (e) the substantive nature of the international transaction," In case the "facts and circumstances" as provided in rule 10TE(10) change, the exercise of valid claim by the assessee, as accepted by this office, would not apply to the relevant assessment year in which such change in "facts and circumstances" take place, other than the initial assessment year and fresh determination of the claim would be required to be undertaken, as per the provisions of rule 10TE(11),This is particularly important in this case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP, Ahmedabad has erred in law and on facts in AO/TPO in accepting the economic analysis undertaken by the assessee is in accordance with the provisions of the Act read with the Income Tax Rules for the determination of the ALP in relation to low end I.T. enabled services and making modifications to this analysis in a subjective, arbitrary and inconsistent manner." 11. In our opinion, it does not spell out any specific grievance of the Revenue, more so, it is an argument, which is connected with the grounds of appeal taken by the assessee. We have already taken care of this issue, while disposing of the appeal of the assessee. Hence, this ground of appeal is rejected. 12. The ground nos.4 and 5 are general grounds of which do not call for recording any specific finding, hence, they are rejected. 13. The ground no.2 reads as under: "2. The DRP, Ahmedabad has erred in law and on facts to hold that Foreign exchange fluctuation gain of Rs. 28,21,403/- is directly linked with export business carried on by the undertaking, and hence, deemed to be derived from undertaking's business eligible for deduction u/s.10A of the Act." 14. ld.DRP has made the following discussion on this is ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
