TMI Blog2015 (7) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... Rao (Judicial Member) And Jason P. Boaz (Accountant Member) For the Appellant : Ajithkumar Jain, CA For the Respondent : R. K. Mishra, CIT-III ORDER Vijay Pal Rao (Judicial Member) This appeal by the assessee is directed against the assessment order dated 19-10-2012 passed u/s143(3) r.w.s.144C of the IT Act in pursuant to the directions of the DRP dated 26-09-2012 for the assessment year 2008-09. 2. The assessee has filed the following concise grounds: 1. The order passed by the DRP and the ld.AO/TPO is not in accordance with the law and is contrary to the facts and circumstances of the present and in any case in violation of the principle of equity and natural justice. Transfer pricing 2. The Hon'ble DRP and the ld.AO/TPO have erred in law and on facts in rejecting without appreciate reasons, the detailed benchmarking analysis conducted by the appellant and embarking on a fresh search for comparables. 3. The Hon'ble DRP and the ld.AO/TPO erred in fact and in law ij determining the ALP by adopting the financial data for a single year (i.e. the financial year 2007-08) of the comparable as against multiple year data considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S segment while determining Alp for international transactions. The Hon'ble DRP/TPO have erred in including the recovery of expenses to the operating income and operating costs of the appellant. 13. The Hon'ble DRP/ld.AO have erred in law and on facts in not considering foreign exchange gain/loss and provision for bad debts as operating items while computing the margins for benchmarking. 14. The Hon'ble DRP and the AO/TPO have erred in fact and in law in applying the provisions of TP to the appellant without appreciating the fact that the appellant was entitled to 100 percent deduction of profits u/s 10A during the relevant year and therefore, there would be not be any motive to shift profits to the other country. Adjustment under the sec.10A of the Act. 15. The Hon'ble DRP and the ld.AO has erred in law and in facts in concluding that the communication expenses (being lease line charges of 2,29,89,758/-) are to be excluded from the export turnover for the purpose of computation of relief under the sec.10A of the Act. 16. The Hon'ble DRP has erred in law and on facts in upholding the ld. AO's conclusion that the said expense should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in ITES segment by selecting 13 comparables and using 3 years data. The TPO rejected 8 comparables selected by the assessee and added 15 more comparables for determining the ALP in respect of the international transactions in ITES segment. The final set of comparables comprising 20 companies has been given by the TPO at page-14 15 of the impugned order as under; Sl. No. Name of the company OP/TC% 1 Accentia Techolgies Ltd (Seg.) 41.77 2 Acropetal Technologies Ltd (Seg.) 35.30 3 Aditya Birla Minacs Worldwide Ltd(Earlier known as Transworks Information Services Ltd) -4.00 4 Asit C Meha Financial Services Ltd (Seg.) 9.42 5 Caliber Point Business Solutions Ltd 10.97 6 Coral Hubs Ltd (Earlier known as Vishal Information Tech.Ltd) 50.68 7 Cosmic Global Ltd 23.30 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 27,18,666/- after allowing the working capital adjustment at 0.72%. The assessee objected the proposed adjustment of TPO by filing the objections before the DRP. The DRP rejected one comparable out of the 20 set of comparable selected by the TPO and also revised the working capital adjustment to 2.79% instead of 0.72%. However, the assessee was not satisfied with the order of the DRP and challenged the comparable selected by the TPO in this appeal. 7. Before us, though the assessee has challenged the entire set of comparables selected by the TPO in the set of comparables however, the learned AR of the assessee has confined his argument only in respect of 2 companies namely Eclerx Services Ltd and Mold Tek Technologies Ltd which are at sl.no.11 16 of the list of comparables selected by the TPO. The learned AR submitted that the assessee is low end ITES providing Co. whereas the Eclerx Services Ltd is a high end service providing Co. and therefore, the said Co. is in the services of Knowledge Process Outsourcing (KPO). He has referred the annual report of the said Co. at page-135 of the paper book and submitted that as per the management commentary the said Co is a KPO providing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DR has submitted that the objects of assessee regarding low end services and high end services was duly considered by the TPO as well as by the DRP and it was found not acceptable because of the reasons that all the comparables selected by the TPO are providing ITES services. Thus, the assessee as well as the comparable selected by the TPO are in the same business activity of ITES and merely because of the nomenclature of KPO given by some of the Co's in their annual report could not change the real nature of services and business activities of these Co's. The learned AR has further submitted that when the assessee itself has selected 13 comparables without applying this filter of BPO/KPO than, the assessee cannot raise this objection only against Co's selected by the TPO. He has relied upon the orders of the authorities below. 9. We have considered the rival submissions as well as the material on record. As it is clear from the business profile of the assessee recorded by the TPO that the international transactions in the ITES pertaining to data processing and in the nature back end service support to the AE group of Co's. The assessee claimed that the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gaged in providing high end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low end services to the group concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AE are compared with the functional profile of M/s eClerx Services(P)Ltd and Mold-Tek Technologies Ltd. it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the directions of the DRP. 10. Thus, it is clear that the functional profile of eClerx Service (P.) Ltd. (supra) was examined by the Special Bench and it was found that the said Co. is mainly engaged in providing high end services involving specialized expertise in the field and the same cannot be compared with a Co. mainly engaged in providing low end services to its group co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is not comparable with the assessee. In support of his contention he has relied upon the decisions of the Special Bench of Mumbai in the case of Maersk Global Centres (P.) Ltd.'s case (supra). The learned AR has pointed out that this Co. is declaring only one segment operating revenue therefore, this cannot be compared with the assessee. 13. On the other hand, learned DR has relied upon the orders of the authorities below and submitted that this Co. is in the field of ITES and therefore, functionally comparable with the assessee. 14. We have considered the rival submissions as well as the material on record. At the outset, we note that functional analysis of the Co. has been examined by the Special Bench in case of Maersk Global Centres India (P.) Ltd. (supra) in para-81 83 as under; 81. Insofar as the case of M/s Mold Tek Technologies Ltd is concerned, it is observed from the annual report of the said company for the FY: 2007-08 placed at pp.139 to 151 of the paper book that he said company was pioneer in structural engineering KPO services and its entire business comprised of providing only structural engineering services to various clients. Further, infor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the export and import has to be taken into consideration while computing the operating profit. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AE are compared with the functional profile of M/s eClerx Services(P)Ltd and Mold-Tek Technologies Ltd. it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the directions of the DRP. 15. The Special Bench has examined the functional comparability of this Co. with that of ITES low end service providing assessee and found that this Co. is rendering web designing and development of services with expertise in turning them in to effective graphics, design representative and creating dynamics and graphic rich web application from IT speces, design, prints etc. Further, this Co. was already found to be involved in providing structural engineering services coupled with extr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wo Co. namely M/s Eclerx and M/s Mold Tek (Supra) and then determine the adjustment, if any after giving the benefit of tolerance range of +=5%. 18. Ground no.15 16 is regarding exclusion of communication expenses/lease line charges from export turnover for the purpose of computation of deduction u/s 10A of the Act. 19. We have heard the learned AR as well as the learned DR and considered the relevant material on record. The only grievance of the assessee on this issue is that if the communication expenses are excluded from the export turnover then, the same should also be excluded from the total turnover in view of the judgment of jurisdictional High Court in the case of CIT v. Tata Elxsi Ltd.[2012] 349 ITR 98 (Kar.) for the assessment year 2003-04. At the outset, we note that this issue is now covered in the case of Tata Elxsi Ltd. (supra), wherein the Hon'ble High Court while dealing with the issue has held in para-17 18 as under; 17. From the aforesaid judgments, what emerges is that, there should be uniformity in the ingredients of both the numerator and the denomination of the formula, since otherwise, it would produce anomalies or absurd results. Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the Legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means, then, when the total turnover includes export turnover, the meaning assigned by the Legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore, the formula for computation of the deduction under section 10A, would be as under: In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of section 80HHC in interpreting section 10A when the principle underlying both these provisions is one and the same. Therefore, we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue . Fol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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