TMI Blog2020 (8) TMI 803X X X X Extracts X X X X X X X X Extracts X X X X ..... in law, the Ld. CIT(A) erred in upholding the order of AO/TPO in : 1. determining the total taxable income of the Appellant for AY 2011-12 against NIL income as reported in the Return Of Income filed by the Appellant. 2. making a transfer pricing adjustment to the total income of the Appellant by holding that the international transactions entered into by the Appellant with its Associated Enterprises ( AEs') were not at arm's length; 3. erred by applying certain rejection criteria/ filters, in an arbitrary, subjective and erroneous manner for the purpose of selection of comparable companies; 4. erred in rejecting Caliber Point business Solutions Limited, Coral Hub Limited and R Systems International Limited as comparable companies on the ground that the companies follow a financial year other than April-March; 5. erred in including TCS e-Serve Ltd. Ltd being functionally not comparable in as much as the same is engaged in high end services by using specialized domain knowledge / Brand Value / Scale of Operation/ High Turnover whereas the Appellant company is engaged in providing low and back office support services of data processing; 6. erred in including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ective. The Transfer Pricing Officer (TPO) disregarded the assessee s TP analysis by rejecting allocation of rent, rates and taxes, repairs maintenance, communication, power fuel charges, based on desk utilization ratio (AE: Non-AE 54:46). Further, the TPO allocated the same in ratio of employee cost (72.7:27.3) for AE to non-AE segment. Accordingly, additional indirect cost of ₹ 56,63,474/- was allocated to AE segment. Further, the TPO disregarded internal TNMM used by the assessee as the primary method to benchmark the international transaction and applied external TNMM. While applying external TNMM, the TPO rejected certain comparable companies and added certain companies. The final set of comparable companies considered by the TPO is as under : Sr. No. Comparable companies Single year margins (OP/OC) Reference 1. Informed Technologies India Limited 9.59% Appellant's comparables 2. Infosys BPO Limited 17.86% 3. Jindal Intellicom Private Limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... International Ltd. be included as valid comparable. 6. On the other hand, the Ld. Departmental Representative (DR) submits that R Systems International Ltd. cannot be treated as a valid comparable in view of the fact it followed a different financial year than the financial year followed by the assessee i.e. FY ending 31st March. In this regard, reliance is placed by him on the decision in PTC Software (I) Pvt. Ltd . 395 ITR 176 (Bom), Principal Global Services Pvt. Ltd . 257 taxman 244 (Bom) 95 taxmann.com 315, Tevapharma India (P.) Ltd . (2017) 81 taxmann.com 416 (Mumbai-Trib.), Hapag Lloyd Global Services Pvt. Ltd . (TS-47-ITAT-2013(Mum)(TP) ITA No. 8499/Mum/2010 dated 28.02.2013, Ocwen Financial Solutions Pvt. Ltd. (TS- 350-ITAT-2018(PUN)-TP1 ITA No. 511/Pun/2016 and CO No. 01 and 14/Pun/2018 dated 14.05.2018 and XL Health Corporation India Pvt. Ltd. v. ACIT -TS-162-ITAT-2018(Bang)-TP-IT(TP)A No. 2311/Bang/2016 dated 09.02.2018. 7. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. We discuss below the case laws relied on by both the sides. We begin with the decisions referred to by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be of the same financial year in which the international transactions were entered into by the tested party. In fact, this principle/mandate was applied by the TPO while considering M/s. Power Soft Global Services Ltd. as a comparable because it had a financial year ending in September, 2006 and not 31st March, 2007 as in the case of respondent assessee. The same yardstick ought to have been applied by the TPO while considering whether Transwork Ltd. was comparable. The submission on behalf of the Revenue that the mandate of Rule 10B of the Rules can be ignored as the difference is only of three months is without any basis. No such liberty is granted in terms of Rule 10B(4) of the Rules. (c) The findings of the Tribunal being on the basis of the unambiguous mandate of Rule 10B(4) of the Rules, question (iii) as proposed does not give rise to any substantial question of law. Thus, not entertained. Thus the Hon ble Bombay High Court has held that data to be used for comparability analysis should be of the same financial year in which international transactions were entered into by tested party. In Principal Global Services Pvt. Ltd . (supra), the Hon ble Bombay High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground that data for entire financial year is not available ; if from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings. In assessee s own case for the AY 2010-11 (ITA No. 566/Mum/2015), the ITAT K Bench, Mumbai has held as under : We have considered the submissions of the parties and perused the material is on record in the light of decisions relied upon. A perusal of the TP order makes it clear that R Systems International Ltd was rejected by the TPO as a comparable only for the reason that it has a financial year different from the assessee it is necessary now to examine whether the company can be included as a comparable. Undisputedly, the accounting year of this comparable is calendar year, whereas ,the accounting year of the assessee is financial year. Therefore, both are having different financial years. A reading of rule 10B(4) would suggest that data relating to relevant financial year of the assessee as well as comparable has to be considered for comparability analysis. Therefore, to that extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound ₹ 1,442 crs vis- -vis the operating income of the assessee of ₹ 14.32 crs. Further, it is stated by him that TCS e-Service Ltd has posted an operating margin of over 60% on cost during AY 2011-12 and considering the same such companies earning super normal profits should be rejected while arriving at the arm s length price. Further it is stated that TCS e-Service Ltd. was taken over by Tata Consultancy Services Ltd. during FY 2008-09 and considering the fact that the company has witnessed a huge surge in earnings and profits due to synergy it has derived by merging with TCS, which is a market leader, this would be the case of exceptional year of operations. Relying on the order of the Tribunal in the case of Goldman Sachs (India) Securities (P.) Ltd. v. ACIT (2017) 78 taxmann.com 142 (Mumbai-Trib.) and Capita India Pvt. Ltd. v. ACIT (ITA No. 356/Mum/2016) for the same assessment year i.e. AY 2011-12, the Ld. counsel submits that TCS e-Service cannot be considered a valid comparable in the instant case. 9. On the other hand, the Ld. DR submits that comparable cannot merely be rejected on applying turnover filter. In this regard, he relies on the order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee s own case for AY 2010-11, the Ld. counsel submits that Acropetal was rejected by the ITAT due to functional difference. Further, reliance is placed by him on the order of the Tribunal in Goldman Sachs (India) Securities (P.) Ltd. (supra) for AY 2011-12 and Ubisoft Entertainment India Pvt. Ltd. v. DCIT (ITA No. 526/Pun/2016) for AY 2011-12. In respect of Accentia Technologies Ltd., the Ld. counsel submits that it is engaged in software development as part of healthcare services; engaged in medical transcription and discreet reportable transcription, medical billing, medical coding, receivable management, practice management consulting etc. Referring to the annual report of Accentia for AY 2010-11, it is stated by him that it is a diversified Knowledge Processing Outsourcing Company (KPO) and is also venturing into offering software as a service model in the healthcare outsourcing area. Relying on the order of the Tribunal in the case of Capital India Pvt. Ltd. (supra) and Maersk Global Services Centre (I) (P.) Ltd. (supra)for the same assessment year i.e. AY 2011-12, the Ld. counsel submits that Accentia be excluded. 12. On the other hand, the Ld. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s performed by the assessee vis- -vis preceding year for which the tribunal has passed the above order dated 29.07.0216 for AY 2010-11. We have also gone through the financial statements of Accentia Technologies Limited which are placed by the assessee in paper book and we also found that there is no variation in the functions performed by the said company in the impugned year i.e. AY 2011-12 vis- -vis earlier years. We do not find any reason to deviate from the afore-said decision of the tribunal in ITA No. 1082/M/2015 dated 29.07.2016 for AY 2010-11. Thus we uphold the decision of the DRP and dismiss the appeal of the Revenue on this ground. Revenue fails on this ground. We order accordingly. Also in Capita India Pvt. Ltd . (supra) for AY 2011-12, the ITAT K Bench, Mumbai vide order dated 19.09.2016 held in case of Accentia Technologies Ltd. the following : From the perusal of the Annual report of this company, it is seen that it is mainly in to rendering of Knowledge processing, outsourcing (KPO) services in the field of Medical. Following services are being provided by this company:- Medical Transcription Discrete Medical Transcription Medial Coding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T) vide Circular No. 17/2019 dated 08.08.2019 has amended Circular No. 3/2018 dated 11.07.2018 for further enhancement of monetary limit for filing of appeals by the Revenue before the ITAT, High Courts and SLPs/Appeals before Supreme Court as measures for reducing litigation. 17. CBDT vide Circular No. 3/2018 dated 11.07.2018 has specified that appeals shall not be filed before the Income Tax Appellate Tribunal (ITAT) in cases where the tax effect does not exceed the monetary limit of ₹ 20,00,000/-. For this purchase, tax effect means the difference between the tax on the total income assessed and the tax that would have been chargeable had such total income been reduced by the amount of income in respect of issues against which appeal is intended to be filed. Further, tax effect shall be taxes including applicable surcharge and cess. However, the tax will not include any interest thereon, except where chargeability of interest itself is in dispute. In case the chargeability of interest is the issue under dispute, the amount of interest shall be the tax effect. In cases where returned loss is reduced or assessed as income, the tax effect would include notional tax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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