TMI Blog2018 (8) TMI 1890X X X X Extracts X X X X X X X X Extracts X X X X ..... red, which shall be considered by the TPO before deciding the matter. MAT Credit u/s. 115JA - HELD THAT:- We have heard both parties in the matter and perused the material on record. We direct the AO to examine and verify the record in respect of the assessee's claim for MAT credit and allow the same in accordance with law. Interest u/s. 234B - HELD THAT:- The assessee denies itself liable to be charged interest u/s. 234B of the Act. The charge of interest is consequential and mandatory and the assessee has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of CIT v. Anjum Ghaswala [ 2001 (10) TMI 4 - SUPREME COURT] and we, therefore uphold the AO's action in charging the assessee, the said interest. The AO is, however, directed to re-compute the interest chargeable u/s. 234B of the Act while giving effect to this order. - IT(TP)A No. 2055/Bang/2016 - - - Dated:- 8-8-2018 - SHRI N.V VASUDEVAN, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER For the Appellant : Shri P.C Khincha, C.A For the Respondent : Ms. Neera Malhotra, CIT ORDER Jason P Boaz, Accou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2012-13, the assessee has filed this appeal, wherein it has raised the following grounds:- A. The Order of the Learned Assessing Officer, pursuant to the Directions of the Honourable DRP in so far as it is prejudicial to the interest of the Appellant is bad-in-law and bad-in-facts.. B. The Directions of the Honourable DRP in so far as the same are prejudicial to the interest of the Appellant are bad-in-law and bad-infacts. C. As regards reference made under section 92CA (1) by the Learned Assessing Officer is without satisfying the conditions of section 92CA (1) and Learned Commissioner of Income Tax is not justified in approving such reference mechanically: The Learned Assessing Officer is not justified in making reference to the Learned TPO under section 92CA (1) of the IT Act without satisfying the conditions provided therein, without application of mind, contrary to Instruction No. 15/ 2015. D. As regards rejecting information and document (TP Document) maintained by the Appellant in accordance with the provisions of section 92D of the IT Act: 1. The Honourable DRP erred in upholding the action of the Learned TPO in inv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 5. The Honourable DRP erred in accepting the comparable companies which failed the FAR Analysis as their functional risk profile were different as comparable to the risk profile of the appellant. In doing so, the Honourable DRP Panel erred in confirming the inclusion of following companies: Infosys BPO Limited; TCS E-Serve Limited; 6. The Honourable DRP erred in upholding the action the Learned TPO in choosing certain companies as comparables which failed the quantitative filters applied by the Learned TPO while conducting fresh benchmarking for selection of comparable companies. In doing so, the Honourable DRP Panel erred in confirming the inclusion of following companies: Sr. No. Name of the Company Fails Quantitative Filters Applied by the Learned TPO 1. Universal Print Systems Limited Fails Employee Cost / Operating Revenue Filter Criteria of 25% Employee Cost / Operating Revenue = 18 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bad and doubtful debts and loans and advance as non-operating expenses while computing the PLI for comparable companies 11. Without prejudice to the above, the Honourable DRP erred in not appreciating that while determining arm's length price under TNMM the Appellant is eligible for the benefit of second proviso to section 92C (2) of the IT Act. F. The action of the Learned Assessing Officer in denying the MAT credit under section 115JAA of the IT Act. G. The Honourable DRP erred in upholding the levy of interest under section 234B of the IT Act when the conditions for levying such interest did not exist in the present case. H. The assessee may be allowed to add, amend, alter or raise additional grounds of appeal. I. The assessee prays for justice. TRANSFER PRICING (GROUND D - 1 to 11) 4.1 In the year under consideration, the assessee has entered into the following international transactions with its associated enterprises ('AE'). Particulars Amount (Rs.) IT Enabled services rendered 16,46,35,357 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arithmetic Mean 18.54% Since the average mean margin of the comparable companies computed at 18.54% was less than the assessee's margin at 18.84%, the international transaction in this ITES segment were considered to be at arms length by the assessee. 5.2 In the course of proceedings before the TPO u/s 92CA of the Act, the TPO rejected the assessee's TP analysis and undertook a fresh TP analysis. After considering the assessee's submissions/objections, the TPO selected a final set of 10 comparable companies which had an average margin of 28.11%, the details of which are extracted S. No. Name of case OP/OC (%) 1. Accentia Technologies Ltd., 11.75% 2. Universal Print Systems Ltd. (Seg)(BPO) 52.46% 3. Informed Technologies India Ltd. 6.08% 4. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5 Before us, the ld AR of the assessee seeks the exclusion of the following 5 companies from the final set of 7 comparables chosen by the TPO. (1) Universal Print Systems Ltd., (seg. - BPO) (2) Infosys BPO Ltd., (3) TCS E-Serve Ltd., (4) BNR Udyog Ltd. (seg. Medical Transcription); and (5) Excel Infosys Ltd. (seg. IT/BPO) 5.6 Further, the ld AR of the assessee seeks inclusion of the following two companies in the list of comparables by the DRP; which were selected and approved by both the assessee and the TPO. (1) Accentia Technologies Ltd., and (2) Jindal Intellicom Ltd., Exclusion of companies as comparables sought for by the assessee 6. Universal Print Systems Ltd., (seg: BPO) 6.1 The ld AR for the assessee submitted that this company should be rejected as a comparable for the following reasons. (i) Fails the employees cost Filter According to the ld AR, this company fails the employee filter of ₹ 25% applied at the entity level. The employee cost filter of the assessee works out to 18.56% (viz. employee cost of ₹ 5,27,11,884/- / by total operating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP/TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP/TC of this company will be only 51.80%. The Assessee further pointed out (Page764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbor rules introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... level and not at the segmental level. The learned DR submitted that if the service revenue filter is applied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPO. 51. The requirements of Rule 10B (1) (2) (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :- (a) to (d) . (e) transactional net margin method, by which,- (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules referred to above to considering segmental data under TNMM because the comparison is of net profit margin realized by the enterprise from an international transaction with the net profit realized from a comparable uncontrolled transaction . Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro, Label Printing, Offset Printing and Pre press BPO. Whether the label printing and offset printing segments supplement the functions performed in the Pre-press BPO segment has to be seen. We therefore set aside the order of the DRP in this regard and remand fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es only from India. It is submitted that while the assessee only provides call centre services, Infosys BPO Ltd., has multiple lines of business and renders high end services in the nature of KPO services. It is also submitted that Infosys BPO Ltd., has huge intangible amounts and high brand value. As per the FAR analysis, Infosys BPO Ltd., bears full fledged risk, whereas the assessee operates at minimal risk. It is submitted that on the basis of the above facts, Infosys BPO Ltd., is functionally different and not comparable to the assessee and therefore should be rejected as a comparable. (ii) Extraordinary event during the year The AR submitted that during the year, Infosys BPO Ltd., acquired the Portland Group PTY Ltd., which is an extraordinary event and could affect its comparability. In support of assessee's claim for rejection/exclusion of M/s. Infosys BPO Ltd., from the list of comparables, the ld. AR placed reliance on, inter alia, the decision of the co-ordinate bench in the case of (i) CGI Information Systems Management Consultants (P.) Ltd., (supra). 7.2 Per contra, the ld. DR for revenue supported the orders of the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. From the details on record, it is seen that the contentions of the assessee that the company u/s BNR Udyog Ltd., is functionally different and fails the RPT filter at the entity level. We find from the record that the bench marking of 'BNR' has been done only at the medical transcription segment and issue of RPT has not been urged before the AO/DRP. From a perusal of the decision of the co-ordinate bench of this Tribunal in the case of Indegene (P.) Ltd., (supra) for asst. year 2012-13, we find that the issue of comparability of 'BNR' has been remanded to the file for the TPO for fresh consideration in tune with its observations at para 10.3.2 thereof, the relevant portion of which are extracted hereunder:- Since in the year under consideration, there are 3 segments, how much of the RPT expenses pertain to each of the segments requires examination and we find that this aspect has not been analyzed by either the TPO or the assessee. While it is clear from the TPO's order that if the benchrnarking is done only for the medical transcr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Trib.) and (ii) XL Health Corp. India (P.) Ltd.'s case (supra). 9.2 The ld. DR for revenue placed reliance on the orders of the authorities below. The ld. DR submitted that, in all fairness in the facts and circumstances of the case, the matter ought to be remanded to the file of the TPO for fresh coordination, as was held in the decision of the co-ordinate bench in the case of Indegene (P.) Ltd., (supra). 9.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company, M/s. TCS E-serve Ltd. are high end KPO services, it has not brought out as to which of these are the services that would come under Technical services. On the other hand, we also notice that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate bench of ITAT-Bangalore in the case of Indegene (P.) Ltd. (supra) has remanded the matter of comparability of thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns at the segmental level and also for the reason that there were abnormally high profit margins over the years. In the case of CGI Information Systems Management Consultants (P.) Ltd., (supra), cited by the assessee, this company was rejected as a comparable on the grounds of consistent diminishing revenue and it was also engaged in the business of software testing, verification and validation of software at the time of implementation and data centre management activities. In the case of XL Health Corpn. India (P.) Ltd., (supra), relied on by the ld. DR, this company was retained as a comparable since the co-ordinate Bench observed that the assessee in that case had not led or filed any evidence to support its contention that this company 'Excel' had failed the employee cost filter. These two decisions (supra), in our view, would not apply to the fact situation prevailing in the case on hand. 10.3.2 In the case on hand, from a careful perusal of the factual material before us, we find that the assessee's contentions that this company, 'Excel' had failed the employee cost filter of 25% has not been examined, either by the TPO or admittedly by the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... these two companies to the file of the TPO for fresh adjudication. Needless to add, that the assessee will be afforded adequate opportunity of being heard in the matter and to file submissions/details required, which shall be considered by the TPO before deciding the matter. 12. In respect of the Transfer Pricing grounds raised at D-1 to 11 (supra), the ld. AR of the assessee urged and pressed before us in the course of hearing only for (i) Exclusion of 5 comparable Companies from the list of comparables and (ii) Inclusion of 2 companies in the list of comparables. Therefore all other grounds raised on TP issues in the aforesaid grounds not being pressed or urged before us are rendered infructuous and accordingly dismissed as not pressed. 13. Grounds A,B,C, H and I were not pressed or urged before us and are therefore rendered infructuous and consequently dismissed as not pressed. 14. Ground F - MAT Credit u/s. 115JA 14.1 The ld AR for the assessee submitted that the assessee had claimed MAT credit u/s115JA o f the Act for A.Y's 2009-10 to 2011-12 which has not been allowed by the AO both in the draft order of assessment and the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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