TMI Blog2015 (11) TMI 1545X X X X Extracts X X X X X X X X Extracts X X X X ..... n foreign currency from the ET as envisaged in the definition of ‘export turnover’ as provided in section 10A of the IT Act. Accordingly, the adjustment made by the AO is to be quashed in entirety. We direct the AO to re-work the same. - IT(TP)A No.324(B)/2015, IT(TP)A No.220(Bang.)/2015 - - - Dated:- 4-11-2015 - SMT ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER Assessee by : Shri Ajith Kumar Jain, CA Revenue by : Shri G.R.Reddy, CIT, DR-I O R D E R PER SMT ASHA VIJAYARAGHAVAN, JM: These are cross appeals by the assessee and the revenue directed against the DRP direction dated 26-11-2014 for the assessment years 2010-11. 2. The facts of the case are that the assessee 2.1 The assessee M/s E4e Business Solutions India Pvt.Ltd.,( e4e India or the Company ) (formerly known as iSeva Systems Pvt.Ltd ) was incorporated in March, 2000 under the Companies Act, 1956. The Company is engaged in the business of customer relationship management services and related business process outsourcing services through a variety of customer contract channels such as voice, e mail, chat and web-based services. The company acquired all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... visions of Sec.144C of the Act, and accordingly, forwarded a draft assessment order (DAO) in the draft assessment order, the AO had proposed the following adjustments. Sl.No Additions/Disallowance Amount(RS.) 1 TP adjustment 61,981,771 2 Excess claim under section 10A of the Act 1,846,246 Total additions/disallowances 63,828,017 On considering the above, the AO computed the total income of the assessee at ₹ 87,773,397/- and determined the total tax payable at ₹ 33,530,390/- (including interest under section 234B,234C and 234D of the Act). 5. The assessee filed its objections with the Dispute Resolution Panel (DRP) against the said draft assessment order on March 24, 2014. The DRP vide its directions dated November 26, 2014 has upheld the rejection of TP documentation and the filters applied by the TPO. Further, the DRP has suo-moto modified the export filter to 75 percent sales as against 25 percent to sales adopted by the TPO. 5.1 Fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in disregarding the multiple/prior year data considered by the assessee in determining the ALP and adopting the financial data for a single year (i.e the financial year-200910 of the comparable despite the fact that same was not available to the assessee at the time of preparing the TP documentation. e. The DRP and the AO have erred in upholding the action of the TPO in rejecting certain comparables identified by the assessee in its TP study using unreasonable comparability criteria and contrary to facts as evidenced by the audited financial statements of the said companies, despite the arguments submitted by the assessee. f. The DRP and the AO have erred in upholding the action of the TPO in finalizing the transfer pricing order with companies as comparable to the assessee despite such companies failing the test of comparability on some or all the factors such as functional dissimilarity, product led revenues, differing turnover/scales of operation, asset base, risk profile etc. and failure of TPO s own filters. g. The DRP and the AO have erred in upholding the action for the TPO in adopting/modifying the filters adopted for conducting TP analysis, without appreciating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -10 it has been held as follows; 10. The TPO had applied external TNMM on entity level and on this issue, the Third Member decision of the Mumbai Bench of the Tribunal in the case of M/s. Technimont ICB Pvt. Ltd. v. Addl. CIT in ITA No.4608/Mum/2010 for AY 2005-06, order dated 17.7.2012 is relevant. In para 10 of the said order, the Tribunal held as under:- 10. Clause (i) of Rule 1OB(e) stipulates that net profit margin from an international transaction with an AE is computed in relation to cost incurred or sales effected or assets employed etc. Clause (ii) is material for the present purpose. It provides that the net profit margin realized by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base. The base of this provision takes one back to clause (i) which refers to cost incurred or sales effected or assets employed or to be employed. On splitting clause (ii) into two parts, it divulges that the reference is made to internal and external comparables. One part of clause (ii) refers to the net profit margin realised by the enterprise from a comparable u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f DRP. 13. We are in conformity and are inclined to follow the decision of the Third Member, ITAT Mumbai Bench in the case of M/s. Tecnimont ICB Private Ltd. (supra) wherein it is held that .. The underlying object behind computing ALP of an international transaction is to find out the profits which such enterprise would have earned if the transaction had been with some third party instead of related party. When the data is available showing profit margin of that enterprise itself from a third party, it is always safe and advisable to have recourse to such internal comparable case. . 14. Hence we are of the opinion that the TPO had erred in choosing an external comparable, when there was an internal comparable uncontrolled transaction which the assessee had taken in its TP study. The assessee s appeal is allowed . Respectfully following the decision of the Co-ordinate Bench authored by JM in this appeal, we direct the TPO to choose internal comparable in controlled transaction as against an external comparable. Hence, we conclude our decision as follows; 8. Ground no.1 2 are general in nature and needs no adjudication. Ground no.3,4 5 are not pressed. Gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 10A of the Act, to ₹ 585,520/-. 8.5 Subsequently, a final assessment order was passed on December 30,2014 ( served on Jan 6, 2015) As per the final assessment order the AO determined the total income of e4e at ₹ 100,873,056 and thereafter raised a demand for tax of ₹ 42,605,150/-. 8.6 Against the final assessment order both assessee and the department are in appeal. The assessee has raised ground no.11. The ground raised in the department appeal in IT(TP)A No.220(B)/2015 is as follows; 1. The directions of the DRP are opposed to law and facts of the case. 2. On the facts and in the circumstances of the case the DRP erred in law in directing the AO to exclude reimbursement of specific expenditure both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s 10A, without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by Sub-clause(4) of Explanation 2 below Sub-section (8) of Section 10A and the total turnover has not been defined in this section. 3. On the facts and circumstances of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndering technical services outside India, but it in the business of export of BPO services as contemplated under the provisions of section 10A of the Act from its offshore centre in India. It is not engaged in rendering onsite services and therefore, telecommunication expenses and travel expenses incurred in foreign currency should not be excluded from the ET and TT in computing the eligible relief under section 10A of the Act. 9.3 Further, BPO services, undertaken for the purposes of export cannot be equated to providing technical services outside India solely for the purpose of excluding travel expenses incurred in foreign currency from the ET as envisaged in the definition of export turnover as provided in section 10A of the IT Act. Accordingly, the adjustment made by the AO is to be quashed in entirety. We direct the AO to re-work the same. Since we have decided ground No.11, in assessee s appeal the grounds raised by revenue in IT(TP)A No.220(B)/2015 are dismissed. 10. In the result, the appeal of the assessee is allowed for statistical purposes and the revenue s appeal is dismissed. Order pronounced in the open Court on the 4th day of November, 2015. - - TaxTMI ..... X X X X Extracts X X X X X X X X Extracts X X X X
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