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TMI Blog2018 (1) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... asons, erred in characterizing the provision of engineering design services ('EDS') by the Appellant as that of information technology enabled services ('ITeS') without appreciating the fact that the Appellant is a service provider involved in the provision of EDS. 4. Without prejudice to the above, the Ld. AO/Ld. TPO based on directions from the Hon'ble DRP erred in enhancing the income of the Appellant by INR 22,983,602 holding that the international transaction of the Appellant pertaining to provision of EDS does not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred in: 4.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 4.2. disregarding the ALP as determined by the Appellant in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Incometax Rules, 1962 ('the Rules'); 4.3. disregarding multiple year/ prior years' data as used by the Appellant in the TP documentation and holding that current year [i.e. Financial Year ('FY') 2011-12] data f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sections 234A, 234B, and 234C of the Act mechanically and without recording any satisfactory reasons for the same. Further, the return of income has been filed duly on 29/11/2012; hence the interest under section 234A is not valid in law. The Appellant prays that appropriate relief be granted. The above grounds are mutually exclusive and are without prejudice to each other. The appellant craves leave to add, amend, alter, vary, omit, substitute, withdraw, modify or delete all or any of the Grounds of Appeal herein or submit such further objections as may be considered necessary at any time either before or during the course of hearing before the Bench of Appellate Tribunal, so as to enable the learned members of the Bench to decide this application and on the objections raised by the appellant, in accordance with the law." 3. From the above grounds, it is gathered that only grievance of the assessee relates to the enhancement of income by Rs. 2,29,83,602/- by holding that the international transaction of the assessee pertaining to the provisions of EDS does not satisfy the arm's length principle envisaged under the Act. 4. Facts of the case in brief are that the assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Ltd -0.46% 13 T C S E- Serve Ltd. 63.69% 14 Tata Elxsi Limited 9.15% Average 20.39% 6. The TPO in determining the adjustment to the transfer price of the assessee denied necessity of appropriate working capital adjustment to the margins of the comparables on the ground that the assessee did not demonstrate any need for working capital adjustment when the interest part was considered as non-operative. He also denied the benefit of risk adjustment. Finally, the TPO considered the average mark-up on cost of 20.39% as compared to 11.37% of the assessee and accordingly proposed an adjustment of Rs. 4,32,63,688/-. The AO passed the draft assessment order dated 18.03.2016 by making the adjustment of Rs. 4,32,63,688/-. Thereafter, the assessee filed the objection before the ld. DRP who observed that the TPO had given valid reason in his order and characterized the assessee company as ITES company and had rejected TP analysis of the assessee after giving reasons. As regards to the comparable selected by the TPO and the rejection of comparable of the assessee by the TPO, the ld. DRP held that TCSE-Serve Ltd., Eclerx Services Ltd. and Infosys BPO Ltd. are to be retained as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PO by claiming that the nature of services should be altered at this stage for evaluation of comparable companies in dispute. We will, therefore, confine ourselves in considering the comparability or otherwise of the companies in challenge before us by treating the assessee as rendering 'I.T. enabled services', as was done by the TPO. 10. Now, we will take up four companies, one by one, to see whether or not these are comparable. At this juncture, it is relevant to mention that the nature of activity carried out by the assessee during the year is admittedly similar to that carried on in the preceding year. The assessee has rendered services emanating from an Agreement entered into with SHI Korea dated 1st February, 2009. Thus, it is ostensible that the nature of services rendered by the assessee during the year are similar to those rendered in the preceding assessment year i.e. 2010-11. The TPO in the preceding year, proceeded in almost the same manner, and considered all the four companies currently under challenge before us, as comparable. The matter travelled to the Tribunal and the same has been decided vide order dated 13.07.2017 in ITA No.576/Del/2015. A copy of such order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndicates that this company is rendering Financial as well as Sales & Marketing services. Income from both these services has been clubbed. Such services include Trade processing support, Reference data maintenance, Contract risk review, Reconciliation and controls, Margin and exposure management, Metrics and reporting, Expenses management, Accounting and finance, Consulting services, Online operations & Web analytics, CRM & business intelligence, Data management & Reporting, Competitor benchmarking & Pricing, Quality & compliance and Business process consulting. This company has a single primary segment i.e., 'Data analytics and process outsourcing services.' A plain reading of the nature of services carried on by this company abundantly shows that there is a vast difference with the activity carried on by the assessee. Relying on the view taken by the co-ordinate Bench for the immediately preceding assessment year, we direct to exclude this company from the list of comparables. (iii) TCS E-Serve Ltd. 14. This company was also considered by the TPO as comparable in the preceding year. The Tribunal directed to exclude this company, inter alia, on account of difference in funct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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." 18. It can be seen that similar activities were done by this company in the preceding year as well. Since the nature of activities carried out by this company for both the years are similar and the Tribunal, for the immediately preceding year, has held this company to be functionally dissimilar, we, therefore, direct to exclude this company from the list of comparables. 19. To sum up, we set aside the impugned order on the issue of addition towards transfer pricing adjustment and remit the matter to the file of AO/TPO for fresh determination of the ALP of the international transaction of 'Provision of engineering, design and related services' in consonance with our above directions. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings." 10. So, respectfully following the aforesaid referred to order dated 22.08.2017 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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