TMI Blog2017 (1) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... aj For the Revenue : G. Aparna Rao U. Mini Chandran ORDER S. Rifaur Rahman (Accountant Member) These appeals are preferred by the assessee as well as the revenue against the orders passed u/s 143(3) r.w.s. 144C of the Income Tax Act, 1961 (in short Act ) dated 03/12/2013 relating to AY 2009-10. 2. Brief facts of the case are, the assessee, a wholly owned subsidiary of ADP group, is engaged in the business of computer software development services. The company had set up a 100% EoU under the STPI scheme at Hyderabad in June 1999. For this AY 200910, the assessee filed its return of income on 29/09/2009 disclosing an income of ₹ 6,87,22,369/-after claim of deduction u/s 10A of the Act in respect of profit from STPI unit. The AO vide his draft order enhanced the total income of the assessee to ₹ 16,47,75,806/-, transfer pricing adjustment being ₹ 7,74,11,952/-in accordance with the TPO s order passed u/s 92CA(3) and in computing deduction u/s 10A of the Act, the AO made the following adjustments in applying the prescribed formula. Export Turnover: Reduced communication charges of ₹ 8,73,53,250/-from export turnover considering the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to the ITES. 2.4 As per the Annual report, the financials of the assessee for this FY, 2008-09, were as under: Description Amount (Rs.) Operating Revenue 284,26,98,860 Operating Cost 243,13,68,874 Operating Profit (PBIT) 41,13,29,986 OP to Cost Ratio 16.92% 2.5 For determination of the arm s length price of the above transactions with its associated enterprises, the assessee adopted Transactions Net Margin method (TNMM). TPO did not dispute the method and considered it to be the Most Appropriate Method. The profit level indicator, operating profit to cost ratio, for the assessee was 17.53%. Its TP study based on 8 comparables yielded PLI of 17.53%. Hence the margin earned was considered at arm's length by the assessee. But, the TPO carried out a fresh search, rejected 4 comparables of the assessee, and added another 8 on the basis of information called for u/s 133(6) of the Act. This led to an average (arithmetic mean) PLI of the comparables at 27.42%.The final comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, the TPO passed an order u/s 92CA(3) of the Act on 28/01/2013, recommended adjustment of ₹ 7,74,11,952/-. The same was incorporated by the AO in the draft assessment order. 3. Aggrieved the assessee preferred appeal before the DRP. 4. DRP rejected the objections of the assessee and confirmed the action of the TPO with regard to the adjustment of ₹ 7,74,11,952/-. However, as regards the objection of the assessee regarding computation of deduction u/s 10A of the Act by reducing the data link charges from the export turnover and further not reducing the same from the total turnover, the DRP directed the AO to reduce data link charges from the export turnover as well as from total turnover while computing deduction u/s 10A. 5. Aggrieved with the above order, assessee is in appeal before us and has raised 14 grounds of appeal, out of which the assessee has pressed only ground No. 8 pertaining selection of comparables and ground No. 13 pertaining to short credit for tax deducted at source, which is corporate tax matter. Therefore, the other grounds are treated as not pressed. 6. The Revenue also came in appeal against the action of the DRP in directing the AO t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. 1.3 The ld. DR, on the other hand, relied on the orders of revenue authorities and submitted that the acquisition was completed during the year but it may not have any financial impact. (refer page 221 of paper book). 1.4 After considering the submissions of both the parties and keeping in tune with the consistent view of different benches of the Tribunal in respect of history of this company in acquiring new business. It might have some impact on the financials and inadequate segmental data, this company was not considered as comparable. The ld. DR submitted that there may not be any financial impact due to acquisition. We are not in a position to appreciate as the data submitted before us is insufficient. Considering the consistent view of other coordinate benches, we are inclined to reject this company as comparable. Therefore, we direct the AO/TPO to exclude the aforesaid company from the list of comparables. 2. Acropetal Technologies Ltd. 2.1 The ld. AR objecting to the aforesaid company being treated as comparable, submitted that the said company provides engg design services and a product company. He submitted that in the following rulings of ITAT, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vt. Ltd., ITA No. 247 295/Hyd/14. 2. M/s Capital IQ Information Systems (India) Pvt. Ltd., ITA No. 124/Hyd/14. 3. TNS India Pvt. Ltd., ITA No. 604 419/Hyd/14. 4. Excellence Data Research , ITA No. 159/hyd/14 5. Hyundia Motor Engg. P. Ltd., ITA No. 255/H/14 6. OSI Systems Pvt. Ltd., ITA No. 683 542/H/14 3.2 In the case of Capital IQ Information Systems India Pvt. Ltd., (supra), the coordinate bench has held as under: 19. The main objection of assessee with reference to the inclusion of this company is with reference to outsourcing of its main activity. Even though this company is in assessee's TP study, it has raised objection before the TPO that this company's employee cost is less than 21.30% and most of the cost is with reference to the outsourcing charges or translation charges, and as such this is not a comparable company. The TPO, though considered these submissions, rejected the same, on the reason that this does not impact the profit margin of the company. Opposing the view taken by the TPO, it is submitted that this company cannot be selected as comparable, as similar issue was discussed by the coordinate Bench of the Tribunal(Delhi) in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mic Global ltd. as incomparable. This case is, therefore, directed to be excluded from the list of comparables. In view of the detailed analysis of the coordinate Bench of the Tribunal in the above referred case, in this case also we accept the contentions of assessee and direct the Assessing Officer/TPO to exclude this comparable for the same reasons. 3.3 The ld. DR, on the other hand, relied on the orders of revenue authorities. 3.4 After considering the submissions of both the parties, it is observed that this company has earned in BPO segment only ₹ 27.76 lakhs and also incurred huge cost by way of translation charges. We are aware that the translation charges have an inbuilt margin included in the cost, which cannot compared with the cost structure of the assessee. Hence, this company cannot be considered as comparable. Accordingly, we direct the AO/TPO to exclude the aforesaid company from the list of comparables. 4. Eclerx Services Ltd.: 4.1 The ld. AR objecting to the aforesaid company being treated as comparable, submitted that the said company has diversified services and KPO Services. He submitted that in the following rulings ITAT reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This company as such, cannot be treated as comparable on FAR Analysis. We, therefore, direct the AO/TPO to exclude this company. The findings of the bench in the case of M/s Mercer Consulting (India) Ltd. (supra) are as under: 14.2. We have heard the rival submissions and perused the rival materials on record. It has been noticed supra that assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective clients. When we consider the nature of services provided by Genesys International Corporation Ltd., it comes to the forefront that they are providing full range of geospatial services to its customers. In simple terms, geospatial services means the services relating to the relative position of things on the earth s surface. These basically include 3D mapping, Navigation maps, Image processing, Cadastral mapping, etc. If we take into account the nature of services provided by the assessee, being financial and retirement security, health, productivity of employees and employment relationships and then try to compare them with those rendered by Genesys, it is manife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ld. DR, on the other hand, relied on the orders of revenue authorities. 5.4 After considering the submissions of both the parties and keeping in tune with the decision of the ITAT, Delhi Bench in respect of the aforesaid company, we direct the AO/TPO to exclude the aforesaid company from the list of comparables. 8. We therefore direct the Assessing Officer/TPO to determine the ALP keeping in view our directions given hereinabove and if on such determination the price charged by the assessee for its international transaction is found to be within the arms length then no adjustment is required to be made. 9. As regards ground No. 13 regarding short credit for tax deducted at source, we remand the issue to the file of the AO with a direction to allow the TDS credit in accordance with law. 10. In the result, the appeal of the assessee is allowed. 11. As regards the ground raised by the revenue in its appeal regarding the action of the DRP in directing the AO to exclude data link charges and freight charges both from turnover as well as total turnover while computing deduction u/s 10A, we do not find any infirmity in the order of the DRP as it is in conformity with the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
