TMI Blog2015 (4) TMI 1190X X X X Extracts X X X X X X X X Extracts X X X X ..... le of ld. TPO to work out the correct adjustment after verification. - IT Appeal No. 5709 (Delhi) of 2011 - - - Dated:- 22-4-2016 - RAJPAL YADAV AND PRASHANT MAHARISHI For the Appellant: Sh.Himanshu S. Sinha, CA,Ms. Somya Seth, CA,Sh. Ankit Arora, CA For the Respondent: Sh. Manu Chaurasia ORDER PER PRASHANT MAHARISHI, A. M. 1. This is an appeal filed by the assessee against the order of the ld. DRP-I, New Delhi for the Assessment Year 2007-08. 2. The assessee has raised the following grounds of appeal: - 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer ( AO ) is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the Ld. AO/Ld. TPO/Ld. Dispute Resolution Panel ( DRP ) erred in making an addition of ₹ 1,28,31,599/- to the returned income of the Appellant by re-computing the arm's length price of the international transactions under section 92 of the Act. Thus, in passing the order the Ld. AO/Ld. TPO/Ld. DRP erred in: 2.1 Rejecting the ALP as determined by the appellant under the TP documentation maintained by it as per sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO/Ld. DRP erred in denying the benefit of 5% margin allowed under the Proviso to Section 92 C(2) of the Act by relying on an amendment applicable only from 1.04.2009 (and not applicable to the relevant assessment year 200708). 6. That the Ld. AO erred in facts and in law in charging and computing interest under section 234B and 234C of the Income Tax Act, 1961 7. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings u/s 271(l){c) of the Income Tax Act, 1961, mechanically and without recording any adequate satisfaction of such initiation. 3. COWI India Private Limited, (Herein referred to as COWI India . / The company / Appellant ) is a subsidiary of COWI A/S, Denmark. The Appellant provides mapping services mainly to COWI A/S, which is 59% of the total turnover of the Appellant during the financial year 2006-07. The Appellant provides mapping services mainly to COWI A/S, the AE of the Appellant. The Appellant also provides such mapping services to non-AEs in India and abroad. As per the functional analysis documented in the Transfer Pricing documentation, the Appellant can be is characterized as a se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n quantitative filters and based on fresh search selected 25 comparables companies with the mean margin 28.34% and proposed and adjustment of ₹ 26236170/-. Assessee filed objections before the ld. DRP and after the direction of the ld. DRP TPO recalculated the amount of adjustment to international transactions only with respect to transaction with AE which is almost 70% of the revenue and has reduced the adjustment to ₹ 12831599/-. Pursuant to direction of ld. DRP an order u/s 154 of the Act was passed on 02.02.2012 by the ld. Assessing Officer wherein the difference in ALP of ₹ 12831599/- was made and assess the total income at the above figure. Against the order of the ld. Assessing Officer passed u/s 143(3) pursuant to direction of ld. DRP assessee is in appeal before us. 8. Ground No.1 of the appeal is general in nature and therefore same is dismissed. 9. Ground No.2.3 to 2.4 are against the comparable companies selected by TPO to which assessee is objecting. 10. Before we proceed to examine the comparables several decisions of various tribunals have been cited by the rival parties regarding inclusion or exclusion of certain comparables submitting tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low subsequently. Therefore, while deciding the comparability the decisions CITED definitely would be perused from this angle. 11. Each of the comparables are discussed as under: - i. Accentia Technologies Ltd. a. This comparable is selected by ld. TPO and obtained the annual report of the company for FY 2006-07 by issuing notice u/s 133(6) of the Act. The assessee objected to this comparables stating that it has an extra ordinary event during the year as it has been formed as a result of amalgamation between two companies. Assessee further objected stating that it is under the single segment of healthcare receivables managemental. TPO rejected the contention of the assessee. Ld. DRP accepted the view of TPO. Before us it was contended that the company was formed as a result of an amalgamation between Geosoft Technologies (Trivandrum) Ltd. and Iridium Technologies (India) Pvt. Ltd. during the Financial Year 2006-07. It has now been settled that a company impacted by an extraordinary event like merger or demerger cannot be taken as a comparable. The company earns revenue from various sources viz. Medical Transcription, Billing Coding and Software Development Im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Mehta Financial Services ltd. The ld. TPO has included this company as it is engaged into ITES and meets all the qualitative filters applied by the TPO. Before TPO assessee contended that it is functionally different. Ld. TPO rejected this argument. Before DRP assessee raised an objection that it has a high advertisement and marketing expenses and also functionally different. Ld. DRP also held that the company performs broadly the same ITES functions. Before us ld. AR submitted that the employee cost to sales ratio of the company is only 22.40% whereas appellant employee cost is 47.33%. This is an altogether new argument taken before us and same was not at all either before ld. TPO or ld. DRP. Further it is not submitted before us that how the employee cost to sales ratio as impacted the price or the margin of the assessee vis- -vis comparables. The AR has relied on the decision of C3i Support Services ltd. In ITA No.2183/Hyd/2011 and decision of ITAT of M/s. Goldman Sech Services Pvt. Ltd. 1423/Bang/2010 wherein both the cases it is submitted that the employee cost to sales if less than 25% hence the comparable should be rejected. There cannot be any dispute with resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 9.6 it is apparent that coordinate benches considered the accounting policy of the comparable with respect to software development services for AY 2009-10. However, in the present case assessment year involved is 200708 and furthermore the segment of the comparable of software development is not at all considered by ld. TPO, he has considered ITES segment of the comparable. Therefore, reliance placed upon the above decision of the coordinate bench is misplaced. In view of this we reject the argument of ld. AR for exclusion of the above comparable. v. Eclerx Services Limited Ld. TPO has included this company after obtaining information u/s 133(6) of the Act. The assessee objected that the RPT of the comparable is 9.97% however ld. TPO rejected this holding that the threshold limit of RPT is considered as 25%. Before DRP it was submitted that the company is functionally different. DRP held that company is engaged in similar function. Before us it is submitted that the company is operating in data analytics space and provides operations management, audit and reconciliation service. It was submitted that it falls in the domain of KPO segment. It was further submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited The above companies have been selected by TPO as its comparable. However, the assessee objected the above comparable that they own intangible and are having brand value. Ld. TPO rejected the above contentions. Before DRP the submission of the assessee was rejected. Wipro Ltd. Was also objected that it is engaged in BPO services. Before us the argument of brand value and economies of scale of both the comparables was cited. It was also submitted that Hon ble Delhi High Court in case Aginity India Technologies Pvt. Ltd. Has considered these comparables. We have carefully considered the rival contentions and respectfully following the decision of Hon ble Delhi High Court direct exclusion of both these comparables as they have brand value and also owns the intangible which are not comparable with the business of the assessee. viii. Inserves India private limited The above comparable was not challenged before TPO or before ld. DRP. Hence, In view of this respectfully following the decision of honourable special bench in Deputy Commissioner of Income-tax V Quark Systems (P.)Ltd. 2010] 38 SOT 307 (CHD.) (SB) We remit this comparable back to the file of the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent. Same arguments were advanced before ld. DRP and both the them rejected the arguments of the assessee. Before us it is contended that as the comparable is engaged in though ITES services but the model of the company is not comparable as it gets work done through outsourcing model. We have carefully considered the rival contentions and we are of the view that comparable is working on outsourcing model there 76% of the company s payments are made to vendors and therefore it cannot be compared with the business model of the assessee, hence it is functionally different. In view of this we direct exclusion of this comparable. 12. Ground No.2.5 of the appeal is against error in computing the addition to the international transactions. The appellant submitted before the ld. TPO and ld. DRP that its AE segment transactions constitutes only 59% of the total transactions of the assessee however, ld. DRP has held that percentage at 70% without any basis. Therefore, the assessee has submitted before us that its total income is ₹ 203898658/- whereas income from provision of mapping services from an Associated Enterprises only 120168998/- which is only 58.94%. ld. DRP while dec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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