TMI Blog2018 (11) TMI 1793X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the file of the TPO/AO for fresh adjudication on the above lines. TCS E Service Ltd. - Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. BNR Udyog Ltd - this company passes RPT filter as well as income from providing ITES being more than 75% of its revenue, this company has to be regarded as comparable company. No other arguments were advanced for exclusion of this company. Hence this company is held to be comparable with that of the Assessee. Excel Infoways Ltd - The contention as regards employee cost filter, nothing was shown to us that the findings of the TPO or Hon'ble DRP are contrary to the material on record. However, as regards diminishing revenue filter, this filter was never applied by the TPO, needless to say application of new filter is not permissible at a later stage. This comparable deleted from the list of comparables on the ground that it is engaged in the business of software testing, verification and validation of software. Working capital adjustment - HELD THAT:- We find merit in the contention of the learned AR of the assessee as there was no need for making any negative working capital ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... action u/s 92CA(3) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]. 3. The appellant submitted transfer pricing study report classifying its activities as ITeS and software services segment and the appellant had adopted TNMM as the most appropriate method for the purpose of bench marking the above international transaction. The appellant also adopted operating profit to total cost as a profit level indicator. However, in respect of ITeS segment, TPO had not accepted the TP study report submitted by the appellant on the ground that the appellant has adopted multiple year data and had not applied the filter of export revenue of more than 75% of sales and the employee cost filter of more than 25% of sales and proceeded to identify different set of comparables by adopting the following filters: Use of current year data. Companies having different financial year ending (i.e. not March 31, 2012) or data of the company which does not fall within 12 month period i.e. 01/04/2011 to 31/03/2012, were rejected. Companies whose service income ₹ 1 cr. were excluded. Companies whose SWD/IT enabled Service is less than 75% of the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being adjustment u/s 92CA 5,82,64,745 5% of price received 1,51,80,116 Since the shortfall is exceeding 5% of the International Transaction, adjustment is made Accordingly, TPO suggested upward transfer adjustment of ₹ 5,82,64,745/- u/s 92CA of the Act vide order dated 25/01/2016. 6. AO, after receipt of TPO order, had passed draft assessment order dated 12/02/2016 proposing TP adjustment of ₹ 5,82,64,745/- and disallowance of interest on delayed payment of TDS of ₹ 7,78,870/-. The assessee-company, after receipt of draft assessment order, filed objections before the Hon'ble DRP contending inter alia that very reference to TPO is not valid in law and also contesting selection of comparables by the TPO. Hon'ble DRP directed TPO to exclude Accentia Technologies Ltd., on the ground of functional difference and retained all the other comparables selected by the TPO. After receipt of directions from the Hon'ble Hon'ble DRP, final assessment order was passed on 25/08/2016 u/s 143(3) r.w.s144C(13) of the Act. 7. Being aggrieved, the assessee-company is before us in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t segmental details. 11.4 We heard rival submissions and perused the material on record. The issue of comparability of M/s.Universal Print Systems Ltd. with that of the assessee-company has been duly considered by TPO after referring to information contained in Annual Report. The relevant findings of the TPO had not been countenanced by learned AR of the assessee. However, the issue of comparability of M/s.Universal Print Systems Ltd. has also been considered by the co-ordinate bench of this Tribunal in the case of M/s.CGI Information Systems Management Consultants Pvt.Ltd. vs. ACIT in IT(TP)A No.586/Bang/2015 and 183/Bang/2017 dated 11/04/2018 wherein it was held as follows: 47. The next submission of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is from services and therefore this objection is not to be accepted. 49. On objections by the Assessee before the DRP, the DRP confirmed the action of the TPO. One of the objection before the DRP was that this company did not figure in the list of companies engaged in ITES. On this objection the DRP held that though this company did not figure in the list of companies in ITES in the main search of capital line and prowess database but on a segmental search these two companies satisfied the requirement of being considered as companies engaged in providing ITES. 50. Aggrieved by the directions of the DRP, the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee reiterated submissions that were made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on such search this company was not regarded as engaged in providing ITES. At this stage the TPO ought to have dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter is applied at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether die markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 52. There appears to be no bar in 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. TCS E Service Ltd.: This company was selected by the TPO and objected by the assessee for inclusion in the list of comparables on the ground that it is functionally different as it is engaged in the business of BPO, banking, finance, insurance domain. This contention was rejected by the TPO by holding that it is engaged in BPO, business of banking, finance, insurance domain, which are purely in the nature of ITeS. Even the Hon'ble DRP confirmed the findings of the TPO. 12.1 Being aggrieved, the assessee is before us contending that this company is functionally different as it is engaged in diversified business activities of BPO such as banking, finance, insurance. Learned AR of the assessee has also drawn our attention to the Annual Report placed at pages 563 to 563 of the paper book and reliance in this regard was placed on the following decisions: Turnover Filter: i. McAfee Software (India) Pvt Ltd US-136-ITAT-2016(Bang)-TP] i i. Swiss Re Global Business Solutions India Private Limited FS-307-ITAT-2017(Bang) Functionally different filter: i. M/s XL Health Corporation India Pvt. Ltd. v. ACIT IT (TP)A No. 2311/Bang/2016 ii. Baxter India Pvt. Ltd. V. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om the list of comparable. 13. BNR Udyog Ltd: This company was selected by the TPO and objected by the assessee on the ground that it fails to pass through RPT filter. Even before the Hon'ble DRP, the same contention was urged. Hon'ble DRP confirmed the finding of the TPO that segmental data pertaining to BPO concern was considered and there are no RPT transactions and hence, confirmed its inclusion. 13.1 Being aggrieved, the assessee is before us in the present appeal. The issue of comparability of this company was dealt with by the co-ordinate bench of this Tribunal in the case of M/s.CGI Information Systems Management Consultants Pvt.Ltd.(supra). The relevant findings are as follows: 53. The next comparable company retained after the order of the DRP which the Assessee seeks to exclude is BNR Udyog Ltd. As far as this company is concerned, it was the objection of the Assessee before the TPO that the TPO ought not to have selected this company as comparable company for the reason that the related party transaction of this company at the entity level was 49.60% of the total revenue and that this company has less than- 75%-of its revenue from providing TTES. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t elating to ITES segment is unreasonable. However, the TPO has obtained information from the company u/s 13396), which has been shared with the assessee, and has worked out employee cost at 26%. Though the assessee has challenged the reliability of information collected u/s 133(6), the same cannot be accepted and has been dealt with separately in this order. Hence, the objection of the assessee is rejected. 14.1 Being aggrieved, the assessee is before us in the present appeal. Even before us, learned AR of the assessee re-iterated the same contentions and also placed reliance on the following decisions: i. CGI Information Systems and Management Consultants Private Ltd., vs ACIT-TS-320-ITAT-2018(Bang)- ii. Baxter India Pvt. Ltd. v. ACIT ITA No.6158/Del/2016 14.2 On the other hand, ld.CIT(DR) has placed reliance on the orders of the lower authorities. 14.3 We heard rival submissions and perused the material on record. The contention as regards employee cost filter, nothing was shown to us that the findings of the TPO or Hon'ble DRP are contrary to the material on record. However, as regards diminishing revenue filter, this filter was never applied by the TPO, nee ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
