TMI Blog2018 (3) TMI 1640X X X X Extracts X X X X X X X X Extracts X X X X ..... essee against the order passed by Ld.CIT(A)-19, dated 17/05/17 for Assessment Year 2011- 12 on the following grounds of appeal: 1. That assessment order passed u/s 143(3) r.w.s. 92CA(3) r.w.s. 144C(l3) of the Income Tax Act, 1961('the Act') by the Assessing Officer ('AO') and the order passed by the Transfer Pricing Officer ( TPO') and the additional disallowances made by the AO/TPO, as upheld by the Commissioner of Income Tax (Appeals) ('CIT(A)') are illegal, bad in law and without jurisdiction. 2. That additional disallowances made are unsustainable, unjust, highly excessive and are not based on any material on record. The total income of the Appellant has been incorrectly and un-lawfully assessed by the AO at ₹ 22.46,350/- as against declared income at ₹ 63,28,954/-. 3. That the reference made by the AO to the TPO suffers from jurisdictional error as the AO has not recorded any reasons in the draft assessment order/assessment order based on which he reached to the conclusion that it was 'necessary or expedient' to refer the matter to the TPO for computation of the arm's length price (ALP), as is required under Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid transaction. 12. That the TPO/AO/CIT(A) have erred, in law and on facts and circumstances of the case, by wrongfully rejecting Caliber Point Business Solutions Ltd. and R Systems International Ltd., on the ground of different financial year ending as such a reason cannot be the basis for rejection. 13. The TPO/AO/DRP have erred, in law and on facts and circumstances of the case, by adding certain companies to the final set of comparable companies for the impugned transaction on an adhoc basis, thereby resorting to cherry picking of comparables. The TPO/AO/DRP have erred in not appreciating that the said companies, do not meet the FAR analysis, and hence cannot be taken as comparable companies to determine the ALP for the said transaction. The selection of such comparables is not in conformity with the principles as laid down Rule 1OB of the Rules . 14. That, the TPO/AO/DRP erred in not rejecting Accentia Technologies Ltd., Eclerx Ltd., Infosys BPO Ltd. and TCS e-serve Ltd., without appreciating that the said companies are not comparable to the Appellant. 15. That the TPO/AO/CIT(A) have erred in not appreciating that there are certain computational errors as the calc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1961 (the Act) and the case was selected for scrutiny. Statutory notices were issued to assessee in response to which Representatives of assessee appeared before Ld. AO and submitted various details. 2.1. Ld. AO observed that assessee is carrying on business of IT enabled services and was set up in SEZ. Assessee was claiming deduction under section 10AA of the Act amounting to ₹ 100,407,633/-. He observed that assessee during the year had entered into international transaction and accordingly reference was made to Transfer Pricing Officer (TPO) for determination of arm s length price. 2.2. Ld. TPO accordingly issued notice to assessee and called for various details. 2.3. Ld.TPO observed that assessee was engaged in provision of IT Enabled Services (ITES) to its Associated Enterprises (AEs). It was observed that assessee was incorporated in India on 17/12/07 and was 100% export oriented unit set up under SEZ guidelines. It was observed that assessee carried out research driven by business information, market research and intellectual property research. Ld.TPO recorded that the client executives (based in Bermuda, US, Europe and Asia-Pacific) was operating from oversea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Interglobe Technologies Pvt Ltd. 3. Microgenetics Systems Ltd. 4. Apex Knowledge Solutions P Ltd. 5. Ace BPO Services P Ltd. 6. Zavata India P Ltd. 2.6. Ld.TPO rejected the other comparables selected by assessee for the following reasons: Sl.No. Name of the Company Remarks 1. Aditya Birla Minacs Worldwide Ltd. This company fails export filter (60.51%). Hence, not a suitable comparable. 2. Caliber Point Business Solutions Ltd. This company is having different financial year ending i.e. December. Hence, can t be considered as suitable comparable. 3. Cosmic Global Ltd. This company fails export filter (52.96%). Hence, not a suitable comparable. 4. Fortune Infotech Ltd. This company is having significant RPT (98.70%). Hence, not a suitab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmed by assessee for the year under consideration. 4.3. From TP report placed at page 696 of the paper book, it is observed that assessee is 100% wholly owned Subsidiary of Evalueserve Ltd, located at Bermuda providing Knowledge Process Outsourcing (KPO) services (intellectual property, market research, business research, financial and investment research and data analytics services) to its clients. It has been stated in the TP report that assessee was incorporated on 17/12/07 and began its operations from August 2008. 4.4. At page 697 of paper book it is being submitted that assessee renders research services primarily to its AE s. Business information Assesse s analysts covers a range of industries including banking, insurance, telecommunications, pharmaceuticals, biotechnology, chemicals, energy and consumer goods. It has also been stated that assessee utilises primary and secondary sources to conduct its research and analysis in the segment. Intellectual property Assessee is involved in carrying out the patent assessments, intellectual property research and analysis, patents consulting and preparing draft of patent application to be filed overseas. This research is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal list. The comparables that has been submitted by assessee to be excluded are as under: Accentia technologies Ltd; Infosys BPO Ltd TCS E-Serve Ltd Eclerx services Ltd The comparables that have been submitted by assessee to be included are as under: R Systems Omega Healthcare Ltd 6. Ground No. 1- 5 are general in nature and therefore do not require any adjudication. 7. Ground No 6-16 and Ground No. 18-25, deals with the comparables and the functional profile of assessee. We shall first take up the comparables that have been disputed by assessee to be excluded from the list of comparables. Ld.Counsel during the hearing submitted a chart consisting of comparables and the reasons contended for their exclusions as under: S No Comparable Reasons of rejection (our contentions) Case laws relied upon by the appellant (Delhi ITAT and Delhi High Court) for same reasons and for same Assessment Year 1. Accentia Technologies Ltd. (pg.1145-1184-Vol. 4- Annual Report) 1) Extraordinary events during AY2010-11(acquisitions/amalgamation) (p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4) Ameriprise India Pvt Ltd. (ITA No. 7014/Del/2014)(pg. 62-63 of CLC). 5) Sun Life India Service Centre P. Ltd. (ITA No. 750/2015) 4. ICRA Techno Analytics Ltd. (pg. 1209- 1234-Vol. 4- Annual Report) 1. Functionally dissimilar- it is engaged in business intelligence and analytics (pg. 1210, 1226, 1232). 2. No segmental details 1) DCIT vs. Ikanos Communication India (P.) Ltd (Bang- ITAT-for A Y2010-11)[2015] 64 taxmc 436 (Bangalore -Trib.) 2) IDCIT vs. Applied Materials India (P.) Ltd20 taxmann.com 160 (Bangalore - Trib. For AY 2 11)- 5. Infosys BPO Ltd.(pg. 943-1026- Vol 4- Annual Report) 1) High brand value and intangibles (goodwill) (pg. 981)- assesse has no goodwill- pg. 692 2) Benefits from being part of 'Infosys' group (pg. 952, 950) 3) Substantial selling and marketing expenses - substantial employee salary under this head and also brand building and advertisement expense (about ₹ 78 crores- approx. 6.96 percent) (pg. 977, 978)- assesse has no och expenditure- In the TP Studyat pg. 599 and 603, it is clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 38/D/15) (pg. 208-210 of CLC) 2. Equant solutions India Pvt Ltd (ITA No. 202/Del/2015 (pg 184-187 of CLC) 3. Ameriprise India Pvt Ltd (ITA No. 7014/Del/2014 (pg 66-69 of CLC 4. Bechtel India Pvt Ltd (ITA No. 1478/Del/2015) Pg 95 of CLC 5. Sun Life India Service Centre P ltd (ITA No. 750/2015 S No. Name of the comparable Reasons for acceptance Case laws relied upon by the appellant 1 R Systems (page 1285- 1374 Vo4 of annual report 1. different financial year ending cannot be the sole basis for excluding a comparable 1. Techbooks international pvt. Ltd (ITA No. 240/Del/2015) pg 30-33 of CLC) 2. United Healthcare Group Information Services P Ltd (ITA No. 103.8/Del/2015 page 210-211 of CLC 3. Ameriprise India Pvt Ltd (ITA No. 7014/Del/2014 (pg 66-69 of CLC 4. Sun Life India Service Centre P ltd (ITA No. 750/2015 Recently, the Delhi High Court (ITA No. 217/2014) in the case of CIT vs. Mckinsey Knowledge Centre India Ltd. has held that different financial year ending cannot be the sole basis of rejection of a comparable, (pg. 145-158 ofCLC) Even ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld. The assessee was aggrieved by the inclusion of Accentia a Software Development Company. The Revenue is aggrieved by the exclusion of Accentia from the TP analysis. The DRP had directed its deletion. We observe that the ITAT has noticed the unavailability of the segmental data so far as these comparables are concerned. Furthermore, the functionality of this entity was concerned, it is different from that of the assessee; Accentia was engaged in KPO services in the healthcare sector. 14. In view of the above findings, this Court is of the opinion that no substantial question of law arises. The appeals are dismissed. 6. The ITAT noted that M/s. Accentia Technologies Ltd. was mainly performing medical transcription services. It was of the opinion that its service was similar to the one that the assessee was engaged in. However, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... val contentions as well as perused the annual accounts of the comparables. At page No. 1172, we have perused schedule 10 of the notes on account wherein it has mentioned that w.e.f. 01.04.2008 a company which was engaged in the business of medical transcription and coding has been amalgamated with the comparable. It is further stated figures for this year are related to amalgamating company also. The profit and loss account of the comparable shows that sales and services of the company are according to Schedule No. 8. There is no change in the income segment of the assessee after amalgamation as amalgamating company was also having the same business, hence, there is no impact of amalgamation on the company with respect to functions performed. Therefore, merely there is a an amalgamation during the year it cannot be excluded as comparable as it does not change the functional profile of the comparable company. However, at page No. 27 the ld TPO has confirmed that this company is engaged in the business of healthcare cycle management which comprises of medical transcription, coding and billing and collection. The medical transcription business require special skill and also employs me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tap the largest percentage of client spend by leveraging its domain expertise and by bringing together consulting, project management and solution based service delivery. In the capital markets division, the company today provides end-to-end financial transaction support services such as trade booking, trade confirmation, asset servicing cash settlements, client servicing risk management and reference data integrity across all asset classes, and its services span both sell side ( the large banks) and buy side ( the funds and assets managers) Furthermore, the company provides strategic and process consulting services helping clients devise solutions to improve efficiency, reduce risk and meet regulatory and market demands. Similarly in the sales and marketing support division, the company today supports clients in all elements of product and services marketing and sales with a focus on online support to include content development and management, search engine management, web operations, pricing and customer analytics, product database management and catalog audits. The company is also pursuing a strategy of creating a portfolio of platform attached services, by creating a suite of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices are used inter-changeability. In view of this we find that this company is functionally not comparable as well as it does not have complete segmental information with respect to the sales and service segments. In the result we direct the Transfer Pricing Officer to exclude the above comparable. 19. The assessee has challenged the inclusion of Infosys BPO Ltd. the main reason seeking its exclusion was high brand value, intangibles, benefit of Infosys branch and large scale operation. 20. The ld DR objected to this and relied upon the order of the ld Transfer Pricing Officer submitting that all these arguments of the assessee has been considered by the ld TPO. 21. We have carefully considered the rival contentions and also verified the annual accounts of Infosys BPO Ltd from page No. 943 to 1026, undoubtedly the Infosys BPO is driving leverage from the client of Infosys Technologies Ltd for cross selling the BPO services of this company. The assets of the comparable company shows that it has a goodwill of approximately ₹ 19 crores. The income stream of comparable was ₹ 1126.63 crores whereas, the assessee s income stream was ₹ 50.90 crores. Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... testing, verification and validation. It also contributes similarly to Tata Brand Equity and for this year the contribution was ₹ 42 crores. Therefore, following the same reasoning given by us for exclusion of TCS eserve International Ltd we also direct the ld TPO to exclude this comparable. 28. The next comparable contested by the assessee is e4e Healthcare Ltd contesting that it is engaged in software development services and owns its own intangibles. The ld Departmental Representative contested relying upon the order of the ld TPO and DRP and submitted that this comparable is assessee s own comparable. 29. We have carefully considered the rival contentions and perused the annual report of the company placed at Page No. 1185 to 1082. However, before analyzing the balance sheet it is very important to note that above comparable was selected by the assessee and hence it was accepted by the TPO as FAR analysis is similar to the assessee. The assessee has selected this comparable based on the functional profile and applying its own filter. This comparable was also not contested before the ld DRP. Before us no reasons were given that why the assessee is now withdrawing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee then if the FAR analysis of that company is comparable, it may be included. Therefore, it is now the duty of the assessee to satisfy the Assessing Officer/TPO with such information. Hence, we direct the ld Transfer Pricing Officer to verify the information with respect to this comparable in accordance with the law and then decide inclusion or exclusion. 31. The next comparable is Omega Healthcare Ltd, which were selected by the assessee but rejected by the ld Transfer Pricing Officer and ld DRP for the reason that the annual report of the relevant year is not available in the public domain. The ld AR stated that same is available in public domain and further same is also produced before us at page No. 1269 to 1284 of the paper Book. In view of this we direct the ld TPO to verify the annual report and decide the issue about inclusion of this comparable. 32. In this appeal ground Nos. 1 to 6 is on transfer pricing issues, however except the exclusion or inclusion of the comparables no other issues were agitated therefore, other than the issue of comparability which has already been adjudicated by us in earlier paras we reject all other contentions in other ground ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
