TMI Blog2016 (7) TMI 1297X X X X Extracts X X X X X X X X Extracts X X X X ..... R. Systems International Ltd. in the list of comparables for working out the PLI of the assessee. We also make it absolutely clear that it would be the duty of the assessee to substantiate the financial information with respect to R Systems International with authentic and reliable data. The ld. TPO or the Assessing Officer are also directed to verify and assure them about the reliability of the information. After this verification, the above company may be treated as proper comparable if found proper on such examination. In the result, ground of the appeal of the assessee is allowed accordingly. Companies functionally dissimilar with that of assessee as engaged in providing ITES such as back office, financial and fund accounting services to its AE need to be deselected from final list of companies. Computation of risk adjustment - Held that:- In the present case, the assessee has submitted the claim at page No. 280, risk adjustment computation with respect to set of comparables. We do not find any sound reasoning given by the ld. TPO, who did not state how the data submitted by the assessee is not reliable. Therefore, in the interest of justice, we set aside this matter to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. On facts and in law, the Hon ble DRP erred in confirming the action of the Ld. AO and the Ld. TPO of modifying/ adding the selection filters, disregarding the functional profile of the Appellant, and consequently rejecting the comparable companies identified by the Appellant in the Transfer Pricing ( TP ) documentation and thus, ignoring the provisions of Rule 10B(2). 6. On facts and in law, the Hon ble DRP erred in ignoring the annual report of Techprocess Solutions Ltd. duly furnished by the Appellant before them and consequently confirming the action of the Ld. TPO of rejecting this company on ground of non-availability of financial data/ annual report. 7. On facts and in law, the Hon ble DRP erred in disregarding the computation of operating profit margins for financial year 2010-11 of R Systems International Ltd., as furnished by the Appellant and consequently confirming the action of the Ld. TPO of rejecting this company on account of having different financial year ending. By doing so, the Hon ble DRP erred in disregarding various judicial pronouncements in this regard. 8. On facts and in law, the Hon ble DRP, Ld. AO and Ld. TPO erred in selection of companies wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the ld. Assessing Officer passed a draft assessment order on 02.02.2015 wherein in the normal computation of income, addition of ₹ 2,90,95,332/- was proposed and determined the taxable income at ₹ 3,15,68,262/- and further, on the book profit declared by the assessee u/s. 115JB of the Act, computed by the assessee of ₹ 2,05,21,759/-, made an adjustment on account of transfer pricing adjustment of ₹ 2,90,95,332/- and determined the taxable book profit u/s. 115JB of the Act of ₹ 4,96,17,091/-. Subsequently, the income was assessed at ₹ 3,15,68,262/-. The appellant further filed its objections against the transfer pricing adjustment proposed in draft assessment order before the ld. DRP and the ld. DRP vide its directions dated 31.08.2015 disposed of the objections of the assessee. Consequently, in the final assessment order, transfer pricing adjustments were made of ₹ 2,33,48,693/- in the normal computation of total income assessing the total income of the assessee at ₹ 2,58,21,623/-. Further, the book profit was increased by TP adjustment of ₹ 2,33,48,693/- against the book profit declared by the assessee of ₹ 2,05,21,759 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... process Solutions Ltd., where the ld. TPO rejected this company on the ground of non-availability of financial data and annual report. The assessee has pointed out that application dated 20.10.2015 filed before the ld. DRP u/r 13 of IT DRP Rules that the ld. TPO has rejected the comparables selected by the assessee holding that data of the company for the relevant financial year was not available in the public domain, however, the assessee has submitted the annual report of that company for F.Y. 2010-11. On objection before the ld. DRP, the stand of the TPO was upheld without considering the annual report submitted by the assessee. This application is pending adjudication. However, as the annual report of the company is available and the same is also submitted in paper book before us, we set aside this ground of appeal to the file of ld. TPO to consider this company for comparability analysis. In the result, ground No. 6 of the appeal is allowed for statistical purposes. 7. Ground No. 7 of appeal is against rejecting R. Systems International Ltd., which found to be though functionally comparable, but as it flows different financial year, it was rejected by the TPO. At page No. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of coordinate Bench in the case of Mercer consulting (India) Pvt. Ltd. vs. DCIT (supra) for the assessment year 2009-10 wherein on the identical facts, on the same comparable of R. System International Ltd., the coordinate Bench has held as under : R. Systems International Limited 11.1. The assessee included this case in a list of comparables. The TPO applied a filter of excluding companies whose data for the financial year 2008- 09 was not available. As the data considered by R. Systems International Ltd. was for the year ending other than March, the TPO held that this case was not comparable. The assessee is contesting the exclusion of this case. 11.2. The ld. AR fairly conceded that R. Systems was following calendar year for maintaining its annual accounts and, as such, the assessee adopted data for 31.12.08 for including it in the list of comparables. It was, however, stressed that this case ought not to have been excluded on this count alone, when it was otherwise comparable. The ld. DR opposed this contention by placing reliance on certain decisions in which it has been held that if the data for the financial year of the comparable case similar to that of the tes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osition that an otherwise comparable company having a different financial year cannot be considered as comparable. But if the data relating to the financial year in which the international transaction has been entered into is directly available from the annual accounts of that comparable, then it cannot be held as not passing the test given under sub-rule (4) of rule 10B. In the case under consideration before the Mumbai Bench, there is no mention of the audited quarterly data of such comparable being available for consideration. It is quite natural that if the data of the financial year is not available or not capable of being directly deduced from the annual accounts of such company, then such case deserves to be excluded. If, however, the audited accounts of such comparable directly give the figures in such a manner that the data of the financial year in which the assessee has entered into an international transaction can be easily deduced, then there is no reason for excluding such an otherwise comparable case. 11.7. We find that R. Systems International Ltd. has been excluded by the TPO solely for the reason that its financial year is different without considering that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for assessment year 2010-11 by the coordinate bench and following the decision of Hon ble Delhi High Court in the case of Rampgreen Solutions, has held that it is functionally incomparable with the assessee. He further stated that there is no change in the data analysis of the assessee as compared to the previous year and therefore, this issue is covered so far as exclusion of this comparable in favour of the assessee is concerned. In spite of that he submitted in his synopsis, the functions performed by this company and demonstrated that it is full fledged entrepreneur carrying greater risk compared to the assessee. He further stated about the outsourcing model, substantial sealing in market expenses and also drawn our attention that there is extra ordinary event during the year. He further relied on the decisions of Hon ble Delhi High Court in thecae of Rampgreen Solutions Pvt. Limited vs. CIT and also Agnity India Technologies vs. ITO over and above assessee s own case for assessment year 2010-11. 15. The ld. DR relied on the order of the ld. DRP and reiterated the findings given at page No. 16 of the order of ld. DRP. He vehemently submitted that this comparable should not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... og audits. The Company is also pursuing a strategy of creating a portfolio of platform attached services, by creating a suite of services that are complementary to industry standard IT platforms. 46. Ld. counsel further submitted that this comparable has to be excluded in view of the decision of Hon ble Delhi High Court in the case of Rampgreen Solution (ITA no. 102/2015), wherein in para 31 it has been held as under: 31. In the present case, the Tribunal noted that Vishal and eClerx were both engaged in rendering ITeS. The Tribunal held that, once a service falls under the category of ITeS, then there is no subclassification of segment . Thus, according to the Tribunal, no differentiation could be made between the entities rendering ITeS. We find it difficult to accept this view as it is contrary to the fundamental rationale of determining ALP by comparing controlled transactions/entities with similar uncontrolled transactions/entities. ITeS encompasses a wide spectrum of services that use Information Technology based delivery. Such services could include rendering highly technical services by qualified technical personnel, involving advanced skills and knowledge, such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable in favour of the assessee is concerned. In spite of that he submitted in his synopsis, the functions performed by this company and demonstrated that it is full fledged entrepreneur carrying greater risk compared to the assessee. He further stated about the outsourcing model, substantial sealing in market expenses and also drawn our attention that there is extra ordinary event during the year. He further relied on the decisions of Hon ble Delhi High Court in thecae of Rampgreen Solutions Pvt. Limited vs. CIT and also Agnity India Technologies vs. ITO over and above assessee s own case for assessment year 2010-11. He also submitted that Hon ble Bombay High court in the case of Pantaire Water India Pvt. Ltd. has excluded this company on account of wide difference in turnover. 19. The ld. DR relied on the orders of the ld. DRP and submitted that high turnover cannot be a criteria for comparability analysis. 20. We have carefully considered the rival contentions. The coordinate Bench in assessee s own case for assessment year 2010-11 in ITA No. 30/Del./2015 at para 38 to 43 has excluded Infosys BPO Limited as comparable observing as under : 38. We have considered th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is case it was emphasized that Infosys Technologies Ltd. could not be considered as a comparable being a giant company. The same principle is applicable to Infosys BPO also. 42. In view of above discussion, we direct ld. TPO to exclude Infosys BPO. 43. In the result, ground no. 6 is allowed. The ld. DR could not controvert how the facts of assessment year 2010-11 in the case of assessee and in the case of comparable are different and, therefore, following the decision of coordinate Bench we direct exclusion of Infosys BPO Limited from the comparability analysis. (iii).TCS E-Serve Limited : 21. The TPO has selected this comparable after rejecting the arguments of the assessee regarding functional non-comparability, incomparable scale of operation, payment of brand equity and presence of intangibles and volatile profit margins. Further, the assessee contended that the TPO did not select the same comparable last year. The ld. TPO held that it is an ITES company and therefore, functionally comparable. On objection before the ld. DRP, the objections were rejected. 22. Before us, the ld. AR submitted that this company is engaged in services like software testing, verif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TCS e-Serve International Limited, this Company is also engaged in providing Transaction processing and Technical services . By referring to Profit Loss Account in standalone financials of the Company it was pointed out that during the relevant financial year, the Company has received Income of ₹ 1,35,94,110/- from Transaction Processing and Other Services. On referring to Schedule O Notes to Accounts it is given that Background and principal activities TCS e-Serve Limited is engaged in the business of providing Information Technology Enables Services (ITES) / Business Process Outsourcing (BPO) services, primarily to Citigroup entities globally. The Company s operations broadly comprise of transaction processing and technical services. Transaction processing includes the broad spectrum of activities involving the processing, collections, customer care and payments in relation to the services offered by Citigroup to its corporate and retail clients. Technical services involve software testing, verification and validation of software at the time of implementation and data centre management activities. 12.3 We also note that Segmental Information given ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f overall similarity and not the peculiar similarity, as has been now contrastly contended for the exclusion of this company. This argument, therefore, fails. 12.5 We have gone through the annual report of Company and have carefully considered the reasoning given by coordinate Bench in the case of Techbook International P. Ltd. (supra). On perusal of Schedule O Notes to Accounts of the Standalone financials of the Company, it is clear that the Company is engaged in transaction processing and technical services activities. No separate segmental details are available. On a careful reading of the decision of coordinate Bench in Techbook International P. Ltd. (supra) it is clear that Schedule O Notes to Accounts in respect to carried out by Company and relevant segmental details were never brought to the attention of the Bench. We find that in the absence of the availability of any such segregation of the total revenue of this company, it is not possible to separately consider its profitability from rendering of `Transaction processing services . Thus, the entity level figures render this company as unfit for comparison. Following the above reasons also taken note in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f segment results 4 Infosys BPO Ltd. 17.73 17.86 Other income (nature unknown) treated as operating 5 Mastiff Tech Pvt Ltd. 5-77 24.34 Provision for doubtful debts treated as non-operating. 27. The learned TPO has further directed to consider whether the reasons for differences stated by the assessee are justifiable or not and if found in accordance with law, the respective correction after proper verification may be allowed. Needless to say that in case of any difference of opinion between the ld. TPO and the submissions made by the assessee, reasonable opportunity of hearing may be granted to the assessee. In the result, ground No. 9 of appeal is allowed accordingly. 28. Ground No. 10 of appeal is against the risk adjustment claimed by the assessee rejected. The assessee claimed before the ld. TPO that the assessee is a low risk service provider and therefore, the risk adjustment may be provided. The ld. TPO rejected the claim of the assessee stating that the assessee could not demonstra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same has not been assailed before us. Under such circumstances, the matter needs to be restored back to the Id. TPO to verify the assessee's contention regarding all the invoices outstanding being for less than six months and, if, the same is found to be correct, then no addition is called for in view of the IT AT decision in the case of M/s Logix Micro Systems Ltd. (supra). One of the plea of Id. counsel for the assessee was that the entire funds are received from parent company. However, this plea has been taken for the first time and was not taken before lower revenue authorities. Therefore, this aspect also needs to be considered by Id. TPO while deciding this issue de novo. In the result, ground no. 9 is allowed for statistical purposes. In view of the above finding, we set aside the issue back to the file of ld. TPO to decide the issue de novo as held in assessment year 2010-11 in assessee s own case because our observations may have an impact in the order passed by the Tribunal in earlier years. In the result, ground No. 11 is allowed for statistical purposes. 33. Ground No. 12 13 are with respect to initiation of penalty proceedings and interest u/s. 234B o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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