TMI Blog2017 (4) TMI 1422X X X X Extracts X X X X X X X X Extracts X X X X ..... (seg) - the company is required to be rejected as it fails on RPT filter being 22.77%. We direct the TPO to verify the RPT of ICRA Online Ltd. (seg) and if the RPT was found to be 22.77% or more than 15% than TPO is directed to excluded it . Jeevan Scientific Technology Ltd., Mindtree Ltd., iGate Solutions Ltd. exclusion as if the turnover of the comparable is below 1/10th of the turnover sales of the assessee or more than 10 times sales of the assessee then said comparables are required to be excluded. Appeal of the assessee is allowed for statistical purposes - IT(TP)A No.85/Bang/2016 - - - Dated:- 28-4-2017 - SHRI A.K GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER For the Appellant : Shri Padamchand Khincha, C.A For the Respondent : Shri Sanjay Kumar, CIT ORDER PER LALIET KUMAR, JUDICIAL MEMBER This appeal by the assessee is directed against the order passed by the Asst. Commissioner of Income-tax, Bangalore dated 31/12/2015 pursuant to the directions by the DRP dated 23/11/2015 for the assessment year 2011-12. 2. The grounds of appeal raised by the assessee are as under:- General Grounds:- 1. passing the Order which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the Appellant and the comparable companies; and i. not making proper adjustment for risk differentials between the Appellant and the comparables. 9. The lower authorities have erred in not appreciating that the law does not compel adopting many (or any minimum) companies as comparables and that the Appellant could justify the price paid/charged on the basis of any one comparable only. 10. The lower authorities have erred in not allowing the benefit of the +1-5% range mentioned in the proviso to section 92C (2). Other Grounds 11. The learned AO has erred in levying a sum of ₹ 60,05,520/- under section 234B. On the facts and in the circumstances of the case, interest is not leviable. The Appellant denies its liability to pay interest u/s 234B. The Appellant submits that each of the above grounds/ sub-grounds are independent and without prejudice to one another. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above grounds of appeal, at any time before or at, the time of hearing, of the appeal, so as to enable the Income-tax Appellate Tribunal to decide the appeal according to law. 3. The asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. After carrying out a methodical search process on Prowess database, the assessee selected 4 companies as comparables. The assessee computed the arm's length price using data relating to FY 2010-11. Adopting operating profit to cost as the Profit Level Indicator (PL), the arithmetic mean margin of the comparables was computed at 9.06%. The PLI of the assessee was at 7.50%. Since the price received by the assessee was within 5% range of the arm's length price, the transactions in respect of data processing services provided to the AE were considered to be at arm's length. 9. The assessee has selected the following comparable in its TP study: 1. Acropetal Technologies Ltd., 2. Cosmic Global Ltd. 3. Infosys BPO Ltd., 4. Ultramarine Pigments Ltd., 10. A reference was made u/s 92CA of the Act to the TPO and the TPO vide notice dated 19/2/2014 asked the assessee to submit the financial statements, tax audit report, TP documents mentioned in sec. 92D of the Act. Thereafter the TPO had given show cause notice on 24/11/2014 and vide this notice, the TPO asked the assessee to furnish his reply in respect of the comparable selected by the TPO. The TPO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Infosys BPO addresses the business challenges and unlocks business value by applying proven process methodologies with integrated II and business process outsourcing solutions. The company focuses on integrated end-to-end outsourcing and delivery of result-oriented benefits to our clients through reduced costs, ongoing productivity improvements, and process reengineering. Standalone financials are considered for the purpose of arriving at margins for comparison 11. Based on the net margin, the TPO has determined ITES services rendered at 283,099,037/- and accordingly determined TP adjustment for data processing services at ₹ 35,956,382/-. 12. Feeling aggrieved by the order passed by the TPO, the assessee filed the proceeding before the DRP. However, before the DRP, the assessee was not successful and the DRP has upheld the finding of the TPO. 13. Though various ground were raised before us, but during the course of argument, but the assessee has only restricted its prayer for the adjudication of the ground with respect to transfer pricing only. 14. Before us, no specific ground with respect to exclusion of any of the comparable has been placed. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidiary of Zyme Solution Inc., USA. Zyme India is engaged in providing support to data management services to Zyme USA's customers. The Taxpayer is a captive service provider rendering services. On Total cost reimbursement plus. a mark up to its parent company. The services provided are in the field of support functions. pertaining to support to data management services (support to data analysis services) (with minimal application of knowledge and limited to nil analytical and technical skills) to its parent company (associated enterprises) in USA. In spite of the parent company having incurred operating losses, the assessee company has consistently declared income on cost plus margin. 19. As noted by us herein above, the coordinate bench in paragraph 15 has reproduced work profile of the company from the service agreement entered by the assessee with its AE. We noticed that in the entire paper book , functions performed by the assessee while discharging contractual obligation with assessee are not available and, therefore, in the absence of any document showing the kind of service being rendered by the assessee to its AE, it is difficult to compare the functions/profile ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vider. A KPO service provider would also be functionally different from other BPO service providers, inasmuch as the responsibilities undertaken, the activities performed, the quality of resources employed would be materially different. In the circumstances, we are unable to agree that broadly ITeS sector can be used for selecting comparables without making a conscious selection as to the quality and nature of the content of services. Rule 10B(2)(a) of the Income Tax Rules, 1962 mandates that the comparability of controlled and uncontrolled transactions be judged with reference to service/ product characteristics. This factor cannot be undermined by using a broad classification of ITeS which takes within its fold various types of services with completely different content and value. Thus, where the tested party is not a KPO service provider, an entity rendering KPO services cannot be considered as a comparable for the purposes of Transfer Pricing analysis. The perception that a BP0 service provider may have the ability to move up the value chain by offering KPO services cannot be a ground for assessing the transactions relating to services rendered by the BP0 service provider by be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... These 2 comparables cannot be subject matter of appeal before the Tribunal as inclusion of these 2 comparables was never challenged by the assesse before the DRP/TPO as well as before the Tribunal. The grounds raised by the assessee before us are not providing any objection for these 2 comparables. Therefore, the objection of the assessee in respect of exclusion of these 2 comparables is devoid of merit and is, therefore, rejected. ICRA Online Ltd. (seg) 23. The assessee has submitted that this company is functionally different since it is engaged in providing information services, software services and KPO services and the company has substantial RPT at 24.77%. The assessee has also drawn our attention to the orders passed by the coordinate bench in the case of 24/7 Customer.com Pvt. Ltd., in ITA No.227/Bang/2010 and Logica Pvt. Ltd., in IT(TP)A No.1129/Bang/2011. The assessee has also submitted that this company fails on export turnover filter of 75%. 24. On the other hand, if we look into the reply given by assessee in response to show cause notice, we notice that the basic objection of the assessee was ICRA Online Ltd. is providing information services and Tech ..... X X X X Extracts X X X X X X X X Extracts X X X X
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