TMI Blog2019 (4) TMI 1898X X X X Extracts X X X X X X X X Extracts X X X X ..... RI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI SANDEEP GOSAIN, JUDICIAL MEMBER For the Assessee : Shri Niraj Sheth, Adv For the Department : Shri Sanjay I Bara, CIT-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER, This appeal by the assessee is preferred against the order dated 29.12.2015 framed u/s 143(3) r.w.s 144C of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short], pertaining to A.Y 2011-12. 2. The substantive grievances of the assessee are as under : 1.0 Adjustment/addition of ₹ 3,21,72,400/- on account of provision of back office support services to Associated Enterprises ( AEs ) : 1.1 On the facts and in the circumstances of the case and in law the Assessing Officer ( AO )/ the Transfer Pricing Officer ( TPO )/ the Dispute Resolution Panel ( DRP ) has erred in making an upward adjustment of ₹ 3,21,72,400/- to the total income of the Appellant by holding that the international transactions relating to the Information Technology Enabled Services (TTeS )/ back office support services provided by the Appellant to its AEs are not at an arm s length. 1.2 The Appellant submits that considering the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services and is mainly engaged in research support for a broad array of business challenges, including competitive intelligence, customer experience and branding customer analytics, investment and due diligence, market entry and product launch. 6. The international transactions transacted during the year are : (i) Provision for IT enables services (ii) Reimbursement of expenses (iii) Recovery of expenses 7. The factual matrix in respect of transfer pricing adjustment vis a vis comparables can be understood from the following charts: (A) Updated single year margin of the comparable companies: Sr No Comparables Single Year Margins 1 Caliber Point Business Solutions Ltd 11.04% 2 Cosmic Global Ltd. 8.06% 3 Datamatics Financial Services Ltd -0.04% 4 e4e Healthcare Business Services Pvt. Ltd 9.14% 5 ICRA Techno Analytics Ltd 24.83% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention is the inclusion of comparable TCS E- Serve Limited. 9. When TPO include this comparable, the assessee objected to it on the following grounds: (i) presence of brand; (ii) super normal profits; (iii) peculiar eco circumstances. 10. The TPO dismissed the objections of the assessee stating that the issues like presence of brand and super normal profits have already been considered. According to the TPO, brand value in a service industry may drive its revenue but may not affect the profitability of a company as contemplated by the tax payer. The TPO further observed that any brand comes with a cost i.e. huge expenses are required to be incurred to build brand value. Thus a brand may generate revenue but with a cost compensating any extra benefit and all the decisions relied upon by the ld. counsel for the assessee for exclusion of this comparable were rejected. 11. The assessee raised objections before the DRP but without any success. 12. Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities. Strong reliance was placed on the decision of the co-ordinate bench in the case of B.C. Management Services [P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which inherently has an element of huge brand value associated with it, which tends to influence the pricing policy and thereby directly impacting the margins earned by the company. Huge payment has been made by TCS E-Serve to TATA Consultancy for use of brand name, TATA. e. TCS E-Serve provides services pre-dominantly to Citi Group. f. Abnormal profit- The Ld. TPO stated super normal profit making companies cannot be rejected unless peculiar economic circumstances of such companies are pointed out. The assessee clearly demonstrated the abnormal circumstances, which led to super normal profits earned by TCS E-Serve. The company earned supernormal profits during the year i.e. 69.31% on cost. This fact is also substantiated in the table provided below: g. Abnormal fluctuations in profits: TCS e-serve's widely fluctuating growth in operating revenue, operating costs and margins. ITA Nos. 6134/Del/2015, 5829/Del/2015 6572/Del/2016 h. Size of the company: The employee cost base is more than 64 times that of the assessee. Further, its turnover is more than 67 times to that of the Appellant (i.e. 1,442.42 crores). i. In the recent case law of Baxter India Pvt. Ltd. (I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive service provider without much intangibles and risks. Another important thing which has been pointed out by learned counsel is that, the operation of 'TCS E-Serve' broadly comprise of transaction processing and technical services including software testing, verification and validation for which no segmental bifurcation is available. In absence of such vital information of the margins of such varied segments it becomes quite difficult to put such company in the comparability basket so as to bench mark the correct profit margin. All the aforesaid factors have been held so in various decisions of this Tribunal in several cases as relied upon by the Ld. Counsel, including the decision of Amri Price India Private Limited (supra). Thus, in our opinion 'TCS E-Serve' cannot be held to be a good comparable for ITA Nos. 6134/Del/2015, 5829/Del/2015 6572/Del/2016 the purpose of bench marking the assessee's PLI and accordingly, we direct the Ld. AO/TPO to exclude TCS E-Serve from the comparability list. 15. Aggrieved by this order of the co-ordinate bench, the Revenue preferred appeal before the Hon'ble High Court of Delhi. The relevant question of law urged re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of provision as contained in Chapter X of the Act. There is no such provision under the law that permits the AO to make adjustment on account of transfer pricing addition to the amount of profit shown by the assessee in its profit and loss account, for the purpose of computing book profit u/s 1 15JB. The law in this regard is clear. Reference is made to the judgment of Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT 255 ITR 273/122 Taxman 562. It is noted from the perusal of the assessment order that the AO has simply made addition by an amount of ₹ 1,30,72,762/- to the amount of net profit as per profit and loss account for the purpose of computation of income u/s 115JB without even mentioning that under what provisions this addition was being made. Such an approach is highly unfair and brings undue and avoidable hardship to the tax payers and we recommend that such a casual approach should be avoided by the revenue officers, as it may tarnish image of the income tax department, which may in turn discourage voluntarily compliance by the taxpayers. Thus, we delete the addition made by the AO. As a result, additional ground filed by the assessee is allowed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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