TMI Blog2020 (2) TMI 930X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer ('AO') the learned Transfer Pricing Officer ('TPO') erred and the Hon'ble Dispute Resolution Panel ('DRP') further erred in making an addition of ₹ 40,94,88,782/- to the Appellant's total income based on the provisions of Chapter X of the Income-tax Act,1961 ('the Act') Functional Profile of the Appellant 2. On the facts and in circumstances of the case and in law, the learned AO / TPO erred and the Hon'ble DRP further erred in not appreciating that the Appellant is mainly a low- end back office support service provider, i.e. a low-end Business Process Outsourcing ('BPO') service provider thereby ignoring the findings of Hon'ble Income Tax Appellate Tribunal ('Tribunal') - Special Bench (I.T.A. No.7466/Mum/2012) in Appellant's own case. 3. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in not considering the observations of the Hon'ble Tribunal-Special Bench (I.T.A. No.7466/Mum/2012) in Appellant's own case wherein it had stated that the principal functions performed by the Appellant should be identified and the same should be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different accounting year end should not be a sole reason for rejection of a functionally comparable company. 7. On the facts and in circumstances of the case and in law, the learned AO / TPO erred and Hon'ble DRP further erred in applying additional filter of rejecting companies with less than 75 percent earnings from exports, which is unwarranted in the comparability analysis. 8. On the facts and in the circumstances of the case and in law, the learned AO / TPO erred and the Hon'ble DRP further erred in not accepting the Appellant's filter of rejecting companies having turnover of less than INR 1 crore and applying additional lower turnover filter of 1/10th times of the Turnover of the Assessee and higher turnover filter of 10 times the turnover of the Assessee, which is unwarranted in the comparability analysis. 9. On the facts and in the circumstances of the case and in law, the learned AO /TPO erred and the Hon'ble DRP further erred in rejecting companies with losses / diminishing revenue, which is unwarranted in the comparability analysis. The learned AO / TPO erred and the Hon'ble DRP further erred in not following the principles laid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed its return of income for Assessment Year 2013-14 declaring total income at ₹ 72,80,85,640/-. Along with the return of income, the assessee furnished report under Form 3CEB. The assessee reported international transaction with its AE for providing IT-enabled services / date processing services and business processing outsourcing of ₹ 5210803840/-. Consequent upon reporting international transaction the assessing officer made a reference to transfer pricing officer (TPO) for computation of arms lengths Price of the said international transaction. The assessee selected Transaction Net Margin Method (TNMM) as most appropriate method to bench mark provision of IT enabled services/data processing/business processing services. The profit level indicator (PLI) selected was operating profit/ total cost (OP/TC). The assessee has shown its margin at 14.52%. The assessee selected itself as tested party. The assessee bench marked its ALP under Transaction Net Margin Method (TNMM),the assessee selected 12 company as comparable and computed the margin in the following manner: Sr.No. Name of the comparable company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT x 1.03 IT x 0.97 5367127955 5054479725 Thus, the ALP of the Inte3rnational transaction is determined at ₹ 579,65,95,374/- leading to an adjustment of ₹ 58,57,91,534/-. It is seen that the assessee has made suo motto adjustment of ₹ 10,75,50,059/- on account of transfer pricing. Accordingly, the net adjustment works out to ₹ 47,82,41,475/- 6. On receipt of report of TPO, the Assessing Officer made upward adjustment/addition of ₹ 47,82,41,475/-. In the draft assessment order passed under section 143(3) r.w.s. 144C(1). The assessee filed its objections before DRP. The DRP after considering the objection of assessee affirmed the rejection of assessee s comparable and further affirmed the inclusion of comparable by TPO. On receipt of direction of DRP dated 31.05.2017, the Assessing Officer passed the final assessment order under section 143(3) r.w.s. 144C(13) dated 28.08.2017. Further, aggrieved by the direction of DRP, the assessee has filed present appeal before the Tribunal. 7. We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the parties and perused the material available on record. There is no dispute that assessee is low end support services provider to its AE. This fact is duly accepted by TPO while benchmarking the international transaction. So far as inclusion of Caliber Point is concerned, we have noted that in assessee s own case for A.Y. 2012-13 this comparable was rejected by TPO and affirmed by DRP. However, on appeal before the Tribunal, this comparable was directed to be included by Tribunal vide its order dated 20.11.2018 in ITA No. 653/Mum/2017 by passing the following order: iv) CALIBER POINT SOLUTION LTD. 20. This comparable was proposed by the assessee. However, the Transfer Pricing Officer rejected it on the ground that the accounting period of the company ends in December, whereas, assessee's accounting period ends in March. 21. The DRP has also upheld the rejection of the company as a comparable for the very same reason. 22. We have considered rival submissions and perused materials on record. As could be seen from the observations of the DRP, the fact that the company is otherwise functionally similar to the assessee has been accepted by the DRP. However, the D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted. We have noted that this comparable company while reporting revenue recognition has shown revenues from website design and development. Further, on perusal of its function as shown on page II of its annual report, this comparable has shown to have engaged in smart cloud based digital public platform and engaged in multifarious activities. 13. The ld. AR of the assessee vehemently submitted that MPS Limited was rejected/drop by TPO from final set of comparable in A.Y. 2014-15. Perusal of TPO order under section 92CA(3) dated 27.10.2017 for A.Y. 2014-15, copy of which is placed on record. Perusal of the order of TPO for AY 2014-15, reveals that no show-cause notice was issued by TPO for inclusion of this comparable. The TPO issued show-cause for inclusion of eClerx, BNR Udyog Limited and Crossdomain Solutions Pvt. Ltd. Thus, the submission of ld. AR of the assessee is devoid of merit. 14. So far as comparability of this comparable on other aspect is concerned. This comparable company is in the business of providing publishing solution and data digitization. Providing variety of services including data coding, conversion, indexing, editorial services and software devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... composing of yellow page advertisements and catalogues, data coding, conversion, indexing, editing, copy editing, editorial services, software development, maintenance and support to global publishers. ( b ) MPS Ltd. is engaged in developing of software projects such as Digicore and Digitrak. ( c ) MPS Ltd. has incurred outsourcing costs which indicate that it follows different business model. ( d ) From the annual report of the said comparable it is noted as under:- MPS Ltd, provides content creation production, transformation and technology services to global academic, scientific and educational publishers. The company has a team of more than 2,860 employees based in offices in Bengaluru, Chennai, Gurgaon, Noida and Dehradun in India and at Portland, Oregon, Orlando, Florida, Durham, North Carolina and Effingham, Ittinos in the United States. Established as an Indian subsidiary of Macmillan (Holdings)Ltd, in 1979, the company had evolved over its forty five year history to become one of the most experienced and dominant players in the publishing services outsourcing space. 9.2 We find that the ld. TPO however did not appreciate the contentions of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ereas the said company Apex Knowledge Salutation Pvt. Ltd., is in the business of E-publishing which cannot be said to be in the same line of business. The functional differences are likely to affect the profit marking capacity of both the companies. In view of the same, we are of the opinion that this company is also to be excluded from the list of comparables. 9.3.1 In view of the above, we hold that the comparable chosen by the ld. TPO, M/s. MPS Ltd., is functionally not comparable with that of the assessee and accordingly, we direct the ld. TPO to exclude the same from the list of comparables. 15. In view of the aforesaid discussions, we are of the view that MPS Limited is not comparable with the assessee-company, which is admittedly engaged in low end support services. Resultantly, we direct the TPO/AO to include the Caliber Point and exclude MPS Limited from final set of comparable and recompute the ALP of International Transaction with regard to IT enabled services; data process services and business process outsource services. 16. The ld. AR for the assessee has neither pressed any other grounds of appeal nor made any submissions therefore, all other grounds of ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
