TMI Blog2015 (12) TMI 1660X X X X Extracts X X X X X X X X Extracts X X X X ..... partment : Shri Amrendra Kumar, CIT, DR ORDER PER R.S. SYAL, AM: This appeal by the Revenue and Cross Objection by the assessee arise out of the order passed by the CIT(A) on 3.10.2012 in relation to the assessment years 2007-08. 2. The only issue raised by the Revenue in its appeal is against the deletion of addition of ₹ 29,69,715/- made by the Assessing Officer (AO) on account of transfer pricing adjustment in computing the arm s length price (ALP) of the international transaction. The assessee in its Cross objection is aggrieved against exclusion of one company, namely, Vishal Information Technology Ltd., from the final set of comparables as approved by the ld. CIT(A). 3.1. Briefly stated, the facts of the case as recorded in the TPO s order are that the assessee is a wholly owned subsidiary of Aptara. Its primary functions include the provision of electronic publishing services, such as, computerized data conversion, web-page construction, data entry/key boarding, copyediting, and CAD/CAM/GIM mapping services to its AE. The assessee undertook one international transaction of: Provision of IT-Enabled data Conversion services valued at ₹ 4,38, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Operating Income 4,40,31,080 Expenditure Total Operating Expenses 3,81,22,147 OP 59,08,933 OP/TC 15.50% 3.3. By considering the arm s length margin of comparables at 23.29%, the TPO worked out transfer pricing adjustment to the tune of ₹ 29,69,715/-. The AO made this addition vide his order dated 28.1.2011 passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter also called `the Act ). The assessee challenged the assessment order before the ld. CIT(A), who deleted the entire addition by excluding Vishal Information Technologies Limited from the comparables selected by the TPO; altering the figure of profit margin of Ace Software Exports Ltd.; and including Ask Me Info Hubs Ltd. in the list of comparables which was excluded by the TPO. Both the sides are in appeal on their respective stands. 4. We have heard the rival submissions and perused the relevant material. At the outset, we want to make it clear that there is no dispute on the selection of TNMM as the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data management, storage, archival and re-purposing of information for various end uses as required by the customers. 5.2. The services so availed by the assessee s AE are ultimately given to end-customers whose list has been given in para 3.2 of the Agreement which includes: Blackwell Publishing, John Wiley and Sons Ltd., Elsevier Science, Cambridge University Press, Springer SBM, i Archives and Pearson Education. Para 5 of the Agreement outlines the manner of remuneration to be paid to the assessee, which is 100% of the actual costs and expenses incurred in the provision of such services plus an appropriate mark-up. The above narration of the relevant clauses of the Agreement delineates the nature of work carried out by the assessee, which precisely is electronic publishing and pre-press services including print ready files to printers and electronic deliverables for on-line publishing by converting data from one file format to another, managing and storing such data for the ultimate use as required by the customers. With this background of the functional profile of the assessee in mind, we will examine the comparability of the companies under challenge. i) Vishal Inform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation Technologies Ltd., as not comparable and direct to eliminate it from the list of comparables. The view taken by the ld. CIT(A) in continuing to include this company in the final set of comparables is, therefore, overturned and the assessee s sole effective ground in cross objection is allowed. ii) Ace Software Exports Ltd. 7.1. The assessee considered this company as comparable in its transfer pricing study report by computing its OP/TC for the year at 8.24%. The TPO continued to include this company in the list of comparables, but, re-worked out its OP/TC at 2.03%. The ld. CIT(A) concurred with the submissions advanced on behalf of the assessee and restored the assessee s stand. The Revenue is aggrieved against the computation of OP/TC of this company at a lower level. 7.2. The ld. DR raised a preliminary objection to the effect that Ace Software Exports Ltd. is functionally different and, hence, the same should be excluded in totality. On a specific question as to whether the TPO disputed the functional similarity of this company with the assessee, the ld. DR submitted that though the TPO accepted it as comparable, but, in reality, this company is not compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondent in a situation where he is otherwise debarred from filing cross appeal or cross objection on a particular point. If no right to file an appeal or cross objection statutorily vests in the respondent on a particular point, then it cannot be inferred indirectly by taking recourse to Rule 27. We have noticed above that though the Revenue has a right to file cross appeal or cross objection against the adverse order of the CIT(A), but it has no right to file appeal against the view taken by the AO/TPO himself, which was not disturbed in the first appeal. Since the condition precedent for seeking relief in terms of the second element of rule 27 is wanting, the very right of taking recourse to rule 27 is lost. As such, we are not inclined to accept the argument of the ld. DR to treat Ace Software Export Ltd. as functionally dissimilar and delete it from the list of comparables, as the same has been treated by the TPO as comparable and the ld. CIT(A) has not tinkered with this conclusion of the AO/TPO. 7.6. On merits, the controversy rotates around the computation of OP/TC of this company. The TPO computed it profit margin on page 15 of his order in the following manner:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opening and closing stocks, which was omitted by the TPO. As such, we countenance the view taken by the ld. first appellate authority in adding the amount of opening stock of this company to the other operating expenses and then reducing the amount of its closing stock, to find out the amount of `Total operating costs at ₹ 4.87 crore. Consequently, the objection taken by the Department is repelled. iii) Ask Me Info Hubs Ltd. 8.1. The assessee considered this company as comparable. The TPO refused to acknowledge it as comparable by noticing that there was a declining turnover and declining profitability of this company which indicated that it was in a negative phase of economic cycle. The ld. CIT(A) found the TPO s observations as factually unfounded and restored the inclusion of this company in the final list of comparables. The Revenue is aggrieved against the inclusion of this company. 8.2. We have heard the rival submissions and perused the relevant material on record. It can be seen from page 15 of the TPO s order that the otherwise functional similarity of this company with the assessee was not disputed by the Officer. The exclusion has been made simply on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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