TMI Blog2017 (1) TMI 1546X X X X Extracts X X X X X X X X Extracts X X X X ..... er alia that :- 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. CIT(A) is bad in law and void ab-initio. 2. That on facts and circumstances of the case and in law, the jurisdictional error of the Ld. Assessing Officer ( AO ) whereby he did not record any reasons in the assessment order based on which he reached the conclusion that it was expedient and necessary to refer the matter to the Ld. Transfer Pricing Officer ( TPO ) for computation of the arm's length price, as is required under section 92CA( 1) of the Act. 3. That on facts and circumstances of the case and in law, the Ld. CIT(A) erred in determining the arm's length price of the Appellant's international transaction at ₹ 15,51,19,800 (as against ₹ 13,85,96,691 determined by the Appellant) in the following manner:- a. The Ld. CIT (A) erred in upholding rejection of the Appellant's TP documentation, comparable companies and analysis thereof. b. The Ld. CIT (A) erred in permitting the use of unaudited data requisitioned by taking recourse to the provisions of Section 133(6) of the Act. c. The Ld. CIT (A) erred in confirming comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (TPO), AO made an addition on account of Arms Length Price (ALP) to the tune of ₹ 2,08,34,850/- qua international transactions with Associated Enterprises (AEs) during Financial Year 2006-07. 5. Assessee company by using Transactional Net Margin Method (TNMM) as the most appropriate method with Operating Profit / Operating Cost (OP/OC) as the Profit Level Indicator (PLI) by selecting 11 comparables with three years weighted average margin at 6.88% vis- -vis assessee s margin at 12.20% and found its international transaction at arm s length. 6. TPO accepted the TNMM with OP/OC as PLI as applied by the assessee company, but rejected seven comparable companies selected by the assessee company and identified 21 companies by making independent search on the basis of functions, assets and risks of the assessee company and finally chosen 25 comparable companies. TPO also used current year data as against three years data used by the assessee company. As per TPO study, arithmetic mean of PLI came to 29.05% and thereby made adjustment of ₹ 2,08,34,850/- to make the international transactions of the assessee company at arms length. 7. Assessee company carried the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enchmarking the international transaction one by one as under:- ACCENTIA TECHNOLOGIES LTD. (ACCENTIA) 15. This comparable company has been chosen by the TPO on the basis of data available in the capital line database as well as on the basis of data made available by the company in response to the notice issued u/s 133 (6) of the Act. Before the TPO, assessee raised objection for inclusion of this company as comparable on the ground that this company has only one segment of health care receivables management and chosen the same as a comparable. 16. Assessee company sought to exclude this company as comparables due to extra ordinary events in the form of amalgamation during the FY 2006-07 and relied upon decision rendered by ITAT, Delhi Bench in COWI India P. Ltd. (ITA No.5709/Del/2011) (available at pages 699 to 715 of the Paper Book-III) and ITAT, Hyderabad Bench in case of Capital IQ Information System India Pvt. Ltd. (ITA No.1961/Hyd/2011) (available at pages 812 to 839 of the paper book). 17. Coordinate Bench of ITAT, Delhi as well as Hyderabad in the cases of COWI India P. Ltd. and Capital IQ Information System India Pvt. Ltd. (supra) respectively ordered to exclude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available at page 685 of the paper book, it is categorically mentioned that Bodhtree have only one segment i.e. software development. Being a software solution company, it is engaged in providing open end to end web solution, software consultancy, design and development of solutions, using the latest technology. So, there is an inherent contradiction in the information supplied by Bodhtree u/s 133(6) vis- -vis its annual report. In these circumstances, information available in the annual report has over-weighted the information received u/s 133 (6), which leads to the functional dis-similarity between the assessee company and Bodhtree sufficient to order its exclusion. Identical issue as to giving precedence to the annual report as against information obtained u/s 133(6) of the Act was discussed by the ITAT, Delhi Bench in Motorola Solutions India Private Limited (supra) and was decided in favour of the assessee company that annual report is to be relied upon as against information u/s 133 (6) of the Act. So, in these circumstances, we hereby order to exclude Bodhtree from the list of comparables. ECLERX SERVICES LTD. (ECLERX) 23. TPO used this company as a comparable on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as against filter of 15% taken by the assessee in its TP study. CIT (A) affirmed the findings returned by the TPO in adopting applicability of 25% RPT transaction filter. 29. Identical issue has come up before the coordinate Bench in Motorola Solutions India Private Limited (supra) wherein it is held that by applying the threshold limit of 15% of RPT transaction sufficient comparables are available then there is no reason to further extend the limit to 25%. In the instant case, undisputedly, 25 comparables have been chosen by the assessee having RPT filter of 15%, out of which the TPO can get sufficient number of comparables for benchmarking international transactions. So far as ground of high turnover as raised by the assessee for exclusion of this comparable is concerned, the same has not been pressed during the course of argument. 30. Moreover, information supplied by HCL u/s 133(6) is inconsistent with the annual report as to adopting a different financial year beginning from July 1 to June 30 which does not pass the TPO s filter of comparable companies having different financial years. So, we direct to exclude HCL from the list of comparables. INFORMED TECHNOLOGIES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied upon order rendered by ITAT, Delhi Bench in case of Calbirated Healthcare Systems India Pvt. Ltd. (ITA No.5271/Del/2012)(available at pages 853 to 862 of Paper Book- III). 34. In the Calibrated Healthcare Systems India Pvt. Ltd. (supra), coordinated Bench examined the comparability of INFOSYS BPO with Calibrated Healthcare Systems India Pvt. Ltd. which is also engaged in providing ITES services to its foreign entity as in the case of assessee and by following the judgment rendered by Hon ble Delhi High Court in CIT vs. Agnity India Technologies Pvt. Ltd. (2013) 219 Taxman 26 (Delhi), directed the exclusion of INFOSYS BPO from the list of comparables on the ground that assessee does not have any substantial intangible assets; INFOSYS BPO has large and substantial research development centre whereas the assessee is not undertaking such activity. Moreover, the assessee is a minimal risk taking company whereas INFOSYS BPO is a full-fledged risk taking company having diversifying business. In other words, INFOSYS BPO is a giant company and cannot be a valid comparable with the assessee company. So, we hereby order to exclude this company from this list of comparables. MAPLE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices, the functional aspects, the business environment, risks and the quality of human resources employed would be materially different in lower end ITES and higher end ITES i.e. KPO. Hon ble High Court further held that where the controlled transactions are clearly in the nature of low end ITES as in the case of assessee being a captive provider engaged in back office work, for rendering data processing not involving domain knowledge, inclusion of KPO service provider as comparable would not be warranted and the transfer pricing study would be impacted at the threshold. Hon ble High Court ordered to exclude the VISHAL as a comparable for ALP determination of Rampgreen Solutions Pvt. Ltd. (supra) engaged in ITES business by making following observations :- 38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the Assessee, apparently, for 'the reason that most of its work was outsourced to other vendors/service providers. The DRP and the Tribunal erred in brus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 14th May, 2007, available at pages 604 to 627 of the paper book. 42. The ld. DR vehemently repelled the argument addressed by ld. AR that no such financials of the company were made available to the TPO and handwritten dated 01.10.2010 is written on the submission and had the data been available with the TPO, he would have considered the same. However, para 1 of TPO s order, available at page 248 of the paper book, goes to prove that the TPO himself admitted to have received the submission of the assessee dated 01.102.010. So, without entering into such technicalities addressed by the ld. Representatives of the parties to the appeal, we are of the considered view that when B2K is also into ITES services and current year data is available, the TPO is required to examine its comparability with the assessee on merits for the purpose of determination of ALP. GROUND NO.4 43. Ground no.4 is not pressed, hence the same is dismissed as not pressed. GROUND NO.5 44. Ground No.5 is premature, hence needs no adjudication. 45. In view of what has been discussed above, the present appeal is partly allowed. Order pronounced in open court on this 18th day of January, 2017. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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