9911796707
TMI Blog2017 (11) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 92CA(3) of the act dated 16.01.2014 which was subjected to direction before the ld Dispute Resolution Panel-1, New Delhi[ in short ld DRP] who passed direction u/s 144C(5) of the Act on 03.11.2014, consequently, the assessed income was determined at Rs. 77425984/- by the ld AO. 2. The assessee is a company engaged in the business of providing ITES [Information Technology enabled services] registered under Special economic Zones [in short SEZ]. The assessee has claimed deduction u/s 10AA of the Act filing audit report in Form 56F. On examination ld Assessing Officer found that assessee has not received export proceeds within 6 months of the end of the year and therefore, claim of the assessee was reduced by granting the deduction only of Rs. 42306994/- denying deduction on non receipt and late receipt of export proceeds of Rs. 75085404/- within 12 months from the date of invoice. 3. Assessee has entered into international transaction of provision of IT enabled services of Rs. 266570625/- and availing of services of Rs. 11584598/- which was benchmarked by the assessee in its T P Study report applying transaction net margin method ( in short TNMM) adopted PLI [ Profit level Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned AO / TPO / DRP have erred by not accepting the economic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules"). 3. the learned AO / TPO / DRP have erred in making an adjustment under Section 92CA (3) of the Income Tax Act, 1961 {"Act") without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of Section 92C (3) of the Act. 4. The learned TPO / AO / DRP have erred in: a. Not accepting the use of multiple year data, as adopted by the appellant in its Transfer Pricing (TP1) documentation; and b. Determining the arm's length margins / prices using data pertaining only to financial Year ('FY') 2009-10 which was not available to the Appellant at the time of complying with the Indian TP documentation requirements. 5. the learned AO / TPO/ DRP have erred by rejecting certain functionally comparable companies identified by the appellant, by applying the following filters: a. rejecting companies having different accounting year (i.e. having accounting year other than March 31 or companies whose financial statements were for a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceeds within a period of six month or within such further period as the competent authority may allow in this behalf) 16. the learned AO / DRP have erred by failing to appreciate that, it is well settled rule for interpretation of law that express provisions as envisaged under the legislation cannot be overruled by the forms. Income tax forms merely act as mode of fulfilling the obligations required to be discharged under the legislation and therefore, legislation shall always have the binding effect over the Forms. 17. the learned AO / DRP have erred by failing to appreciate Master Circular dated July 1, 2009 (applicable for the AY 2010-11) issued by the Reserve Bank of India ('RBI') expressly provides that there is no time limit for realization of the export proceeds in case of SEZ units 18. without prejudice, even if section 10AA of the Act is to be read with section 10A(3) of the Act, the learned AO / DRP have erred, in law and on facts and circumstances of the case, by failing to consider the relaxation provided under Section 10A(3) of the Act with respect to realization of export proceeds 19. the learned AO / DRP have erred by failing to consider the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable contested is Accentia Technologies Ltd. 8. For this ld AR vehemently submitted that there is an extra ordinary event of amalgamation, functional dissimilarity, and non availability of segmental information and therefore this comparable company should be rejected. 9. The ld DR submitted that amalgamation does not have any impact on the business performance of the company and further it is functionally comparable, so it cannot be excluded. He further relied on the order of the ld DRP as well as the ld Transfer Pricing Officer where they have given reasons for inclusion of this comparable. 10. To decide on the inclusion or exclusion of any comparable for comparability analysis, prime requirement is to compare the functions performed by assessee with the functions of the comparable selected. Therefore, firstly, we refer to the functional profile of the assessee company. According to the transfer pricing study report the FAR analysis of the assessee is as under:- 4.02.2. Functions performed The purpose of this section is to identify economically important activities performed by each of the related parties and to explain the significance that each function has in creating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finished product/service. Quality control can be pursued by employing a combination of automated guality control eguipment and qualified inspectors. With respect to the services rendered, BT e-Serv is responsible for ensuring that the requisite quality/ performance standards prescribed by BT Pic are met while rendering services. In the event of a quality failure, BT e-Serv may be asked to rework the same. However, the STPP mechanism ensures that BT e-Serv earns an arm's length return. * Human resources BT e-Serv undertakes the recruitment, hiring and training process and is responsible for day-to- day supervision and control of its employees. The functions performed by BT e-Serv and BT Pic with respect to the provision of IT-enabled services by BT e-Serv are summarised in the table below. BT e-Serv BT Pic Management functions No Yes Strategic management functions No No Marketing and business development Provision of services Conceptualization of services No Yes Execution of services Yes No Performance/ Quality assurance Yes Yes Human resources Yes No 4.02.2. Risk analysis Briefly s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as its functional currency. Accordingly, BT e-Serv does not bear any the foreign exchange risk. Briefly tabulated below are the risks, which are faced by BT e-Serv and BT Pic in relation to the IT- enabled services, provided by BT e-Serv: Type of risks BT e-Serv BT Pic Business / market risk No Yes Capacity utilisation risk No Yes S ervice liability risk No No Credit and collection risk No No Foreign exchange risk No Yes 11. Above functional profile of the company is not disputed by the ld TPO as well as ld DRP. Before us, the ld DR has also not disputed the same. Therefore, for comparability analysis the above functional profile of the assessee company has become final and the comparable selected by the assessee as well as by the ld TPO are required to be tested on that parameter only. 12. We have carefully considered the rival contentions and perused the annual accounts of the Accentia Technologies Limited submitted at page No. 1 to 108 of the paper book. As per page no 42 of the annual report the nature of services performed by this company are functions of medical transcription. „Medical transcription‟ services are IT enabled servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption which is required to be carried out by well-trained persons who must be knowledgeable in the field of pharmacology. Further the comparable company has considered all the 3 segments as one segment. On perusal of page No. 78 of the annual report of the company it is noted that w.e.f. 1 st April 2008 the company which is engaged in the similar line of business has been amalgamated with this company. However, we do not find any reason to exclude this company for the reasons of amalgamation because the functions performed by the amalgamated company and amalgamating company are similar. But on comparison of the functional profile of the comparable with assessee company, which provides corporate services, marketing and business development services etc which are of routine administrative nature, we find that functions of the assessee company are not at all comparable with the medical transcription function of the comparable company. But same cannot be said with respect to the medical coding and medical billing activities of the comparable company which are almost similar to the support functions performed by the assessee. However, in absence of segmental information available in cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as well as the comparable companies the ld Authorised Representative vehemently argued that same may be granted to the assessee. The ld Transfer Pricing Officer has rejected both the above adjustment as para No. 15 and 16 of his transfer pricing order for the reason that assessee could not demonstrate that there is difference in the level of working capital employed by the assessee company vis-à-vis comparable. 16. With respect to the risk adjustment the ld Assessing Officer rejected the contention of the assessee that appellant is a risk mitigating entity as it has a single customer risk. 17. Before us ld DR vehemently relied upon those paragraphs of the order of the ld TPO and submitted that in absence of proper relevant details these adjustments cannot be given to the assessee. 18. We have carefully considered the rival contentions and specifically sought the details of such workings from the assessee. We also asked ld AR that whether working of such adjustment claim was given to the Assessing Officer or not. We have also sought copies of such claim for the workings of adjustment. However, no such working was also given to us. In view of this we reject the request f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause in the agreement of credit period up to 60 days and in case of Bechtel there is a agreed period of 60 days whereas in the case of the assessee there is no such period stated by the assessee. He therefore, submitted that in such event the assessee has kept the outstanding amounts for more than 300 days under many cases. He vehemently referred to page No. 111 of the order of the ld. Transfer Pricing Officer. He further submitted that whether the assessee is a debt free company or debt laden company, is not at all a criterion for imputing interest on outstanding. 22. We have carefully considered the rival contentions. The service agreement dated 01st August 2009 is placed at page No. 294 to 311 of paper book. The service fees are governed by clause 4 of the agreement. According to clause No. 4.9 subsequent to confirmation of the invoices it is provided that the paying party will pay the invoice amount to the invoicing party in accordance with the BT group policy for the settlement of intra-group transaction. Schedule 1 of that agreement is with respect to the services, Schedule -2 is with respect to BTGS transfer pricing policy. According to para No. 3.4 of that policy the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceivable is not an „international transaction‟ and therefore, hence, according to us, interest on it requires to be imputed. Now the next question arises is that if outstanding receivables are within the terms of agreement of rendering of services than it may be argued that interest on such outstanding is already covered in the sale price of the goods. Naturally such is not the case of the assessee before us as some of the outstanding are for more than 300 days. Decision relied upon by the ld AR in the case of Ameriprice and Bechtel are distinguishable on the facts as they had credit period as per agreement but in case of assessee it is not so. The arguments that master circular of RBI does not prescribe any conditions for repatriation of exports proceeds for SEZ, it cannot be said that for determining ALP of export receivable, which becomes capital financing, if outstanding is beyond agreed or reasonable time limit, does not have any impact on the benchmarking of the same, as the purposes of RBI policy and Income Tax Act are on different footings. However, even if the agreement does not specify the term of the payment even then assessee must be given benefit of credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not been received in convertible exchange on or before 30th September 2010 then, the deduction u/s 10AA cannot be granted. Assessee submitted that there is no specific provision u/s 10AA requiring the realization of export proceeds within a prescribed time limit. Further, assessee relied on the master circular on export of goods and services issued by the RBI under FEMA. The ld Assessing Officer rejected the contention of the assessee for the reason that according to section 10AA(8) which makes applicable sub-section 5 and 6 of section 10A to this section i.e. 10 AA of the act, and according to form No. 56F, the realization of export proceeds is required to be shown. In that form assessee has shown that full consideration in convertible foreign exchange for exports made by the undertaking was brought into in India within a period of 6 months from the end of the previous year. The auditor has also certified the above fact as correct. Therefore, the ld Assessing Officer considered the export turnover at Rs. 190912493/- instead of Rs. 265997897/- and computed the deduction at Rs. 42306994/. The ld DRP on objection by the assessee confirmed the action of ld Assessing Officer. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qualify the definition of export and export turnover. Even otherwise assessee has not given any details of receipt of foreign exchange and therefore the consideration in respect of that is either received in or brought into India by the assessee. Hence, we confirm the finding of the lower authorities regarding disallowance of deduction under section 10 AA of the income tax act on this sum. With respect to the other sum of Rs. 4.80 crores The assessee has given foreign inward remittance certificates and such sum has also been received in India on 04/02/2011 and 24/2/2011. The provisions of section 10 AA does not provide any time-limit of bringing such consideration into India like section 10 A (3) which provides for receipt of consideration or sale proceeds in India in convertible foreign exchange within a period of 6 months from the end of the previous year, or within such further period as the competent authority may allow in this behalf. Further the contention of the revenue that provision of section (5) and (6) of section 10A shall apply by virtue of the provision of section 10AA (8) of the act. The provision of section 10A (5) speaks about the audit of the accounts and submissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome was determined at Rs. 105503756/-. 31. The assessee is a company engaged in the business of providing ITES registered under SEZ. The assessee has claimed deduction u/s 10AA of the Act of Rs. 117451538/- filing audit report in Form 56F. on examination ld Assessing Officer found that assessee has issued invoice on 31.03.2011 for Rs. 104980126/- and out of which only Rs. 3092732/- was received within 6 months. Therefore, the applying the provisions of section 10A(3) of the Act the disallowance of Rs. 101887394/- was made. 32. On the transfer pricing issue the assessee has entered into international transaction of provision of IT enabled services of Rs. 411427780/- which was benchmarked by the assessee applying transaction net margin method (TNMM) adopted PLI of OP/OC selected 14 comparable company having arithmetic mean of PLI of 18.09% compared with the PLI of the assessee of 23.42% claiming that international transaction entered into by it are arms length. 33. The ld TPO rejected the TP study of the assessee rejected 11 comparables retaining only 3 and further added five comparables and thereby populating the 8 comparables as per para No. 10.5 at page NO. 79 of this order com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of any profit from a low tax paying country to a high tax paying country 2. the learned AO / TPO / DRP have erred by not accepting the economic analysis undertaken by the appellant in accordance with the provisions of the Act read with the Income Tax Rules, 1962 ("the Rules"). 3. the learned AO / TPO / DRP have erred in making an adjustment under Section 92CA(3) of the Income Tax Act, 1961 ("Act") without returning a finding about existence of any of the circumstances specified in clauses (a) to (d) of Section 92C(3) of the Act. 4. The learned TPO / AO / DRP have erred in: a. Not accepting the use of multiple year data, as adopted by the appellant in its Transfer Pricing (TP1) documentation; and b. Determining the arm's length margins / prices using data pertaining only to financial Year ('FY') 2010-11 which was not available to the Appellant at the time of complying with the Indian TP documentation requirements. ANNEXURE B 5. the learned AO / TPO/ DRP have erred by rejecting certain functionally comparable companies identified by the appellant, by applying the following filters: a. rejecting companies having different accounting year (i.e. having a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law that express provisions as envisaged under the legislation cannot be overruled by the forms. Income tax forms merely act as a mode of fulfilling the obligations required to be discharged under the legislation and therefore, legislation shall always have the binding effect over the Forms. 16. the learned AO / DRP have erred by failing to appreciate Master Circular dated July 1, 2009 (applicable for the AY 2011-12) issued by the Reserve Bank of India {'RBI'} which expressly provides that there is no time limit for realization of the export proceeds in : case of SEZ units. 17. without prejudice, even if section 10AA of the Act is to be read with section 10A(3) of the Act, the learned AO / DRP have erred, in law and on facts and circumstances of the case, by failing to consider the relaxation provided under Section 10A(3) of the Act with respect to realization of export proceeds 18. the learned AO / DRP have erred by failing to consider the legislative intent that even provisions under section 155(11 A) of the Act do not intend to put any restriction on the deduction under section 10AA of the Act where the foreign exchange is not received within the stipulated tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im that this comparable does not own any significant intangibles. The assessee contested this comparable before the ld DRP who upheld the action of the ld TPO. 36. Before us, the assessee has contested that the above company is functionally not comparable as it is rendering different set of services such as data analytics, computer added simulations. It was further submitted that it is considered as a knowledge process outsourcing service provider as per Hon'ble Delhi High Court in Rampgreen Services Solutions Pvt. Ltd Vs. CIT 60 Taxmann.com 355. It was further submitted that it has exceptionally high margin and high turnover and further segmental data is also not available. In the end the ld AR relied upon the decision of Ameriprice India Pvt. Ltd Vs. ACIT 62 Taxmann.com 237. 37. The ld DR defended the order of the ld TPO as well as the ld DRP. 38. We have carefully considered the rival contentions and also perused the orders of the lower authorities with respect to this comparable. With respect to this comparable coordinate bench in ITA No. 2010/del/2014 for assessment year 2009 - 10 in case of Ameriprise India private limited (who is also an ITES company) was excluded thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... representative submitted that this company is functionally different as it earns revenue from 4 different activities such as financial information processing, customer contract voice services, business process management and analytics. It was further stated that during the year it was taken over by the TCS Ltd and therefore it has an exceptional year of operation. It was further contested that it be high risk and also earns super normal profit and further it has insufficient segmental information. He further held that this comparable has been excluded by the Ld. dispute resolution panel in assessment year 2010 - 11 on account of being functionally dissimilar to the assessee. He further relied on the decision of the coordinate bench in case of capita India private limited versus ACIT and Actis global services private limited versus ITO. 41. The Ld. departmental representative vehemently contested the arguments of the Ld. authorized representative and submitted that above comparable is functionally carrying on the same activities and therefore has rightly been included by the Ld. transfer pricing officer for comparability analysis. 42. We have carefully considered the rival conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risk profile and working capital of the appellant vis-a-vis the comparable companies. As we have already decided this ground of appeal in the appeal of the assessee for assessment year 2010 - 11 wherein we have stated that assessee has not produced any working before ld TPo as well as before us, therefore we do not find any infirmity in the order of Ld. assessing officer/transfer pricing officer/Ld. dispute resolution panel for this year also. In the result ground No. 9 of the appeal of the assessee is dismissed. 46. Ground No. 10-12 are with respect to the adjustment made by the Ld. assessing officer/transfer pricing officer with respect to the outstanding receivable considering the same as an international transaction and making an adjustment to the extent of Rs. 22216096/-. This ground of appeal of the assessee are identical to ground No. 10 - 13 in the appeal of the assessee for assessment year 2010 - 11. Both the parties agreed before us that there is no change in the facts in the present appeal compared to the appeal of the assessee for that assessment year. Therefore, following our own decision and for the same reasons as given by us in appeal of the assessee for assessmen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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