TMI Blog2020 (9) TMI 819X X X X Extracts X X X X X X X X Extracts X X X X ..... bench in the AY 2012-13, the bench gave the direction to AO to dispose off the application as per law. Similarly, we are directing the AO to consider the submissions of the assessee and remitting this issue to his file to pass the rectification application as per law. Accordingly ground raised by the assessee is allowed for statistical purpose. - I.T.A. No. 158/Mum/2018 - - - Dated:- 15-9-2020 - Shri C. N. Prasad, JM And Shri S. Rifaur Rahman, AM For the Appellant : Ms. Karishma Phatarpekar, AR For the Respondent : Shri Uodal Raj Singh, DR ORDER PER S. RIFAUR RAHMAN, ACCOUNTANT MEMBER: The present appeal filed by the assessee is against the final order of assessment passed u/s 143(3) r.w.s. 144C(1) of I.T. Act, 1961 in pursuance of the directions issued by the Dispute Resolution Panel (in short DRP ) u/s 144C(5) of the Act vide order dated 29.06.2017 for AY 2013-14. 2. The brief facts of the case are, assessee filed its return of income on 29.11.2013 declaring total income of ₹ 35,27,99,210/-. The case was selected for scrutiny under CASS and accordingly, notice u/s 143(2) and 142(1) of the Act were issued and served on the assessee. In resp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75.90 Average Margin 28.14 And TPO determined the Arms length price for the international transaction and proposed transfer price adjustment of ₹ 4,59,35,558/- to the arm s length price declared by the assessee. 6. Further, AO observed that in the 3CD report, the auditor declared in column 168 that employee contribution of PF and ESI were not deposited by the assessee before the due date specified in the relevant Act/rule/order or notification issued therein. The show cause notice issued to the assessee to submit the reason why the disallowance u/s 36(1)(5)(a) r.w.s. 2(24) of the Act should not be made. Assessee filed relevant information and submission before AO. AO rejected the submissions of the assessee and made addition of ₹ 73,45,335/- u/s 36(1)(5)(a) r..w.s. 2(24) of the Act. Accordingly, AO passed draft order u/s 143(3) r.w.s. 144C(1) of the Act. 7. Aggrieved with the above order, assessee preferred to file the objections before DRP and made the detailed submission against the transfer pricing adjustments made by the TPO. After considering submission of the assessee, the DRP rectified the margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d AO and the learned TPO under the directions of the Hon'ble DRP have erred in selecting comparable companies, which are in-fact not comparable to the Appellant. 4. On the facts and in the circumstances, and in law the learned AO and the learned TPO under the directions of the Hon'ble DRP have erred in rejecting comparable companies, which are in-fact comparable to the Appellant. 5. On the facts and in the circumstances, and in law the learned AO and the learned TPO under the directions of the Hon'ble DRP have erred in determining the arm's length price in violation of section 92C(1) and 92C(2) by resorting to cherry picking of two comparable companies. 6. On the facts and in the circumstances, and in law the learned AO and the learned TPO under the directions of the Hon'ble DRP have erred in incorrectly computing the margin of Excel Infoways Ltd. 7. On the facts and in the circumstances, and in law the learned AO and the learned TPO under the directions of the Hon'ble DRP have erred in disregarding multiple year data analysis undertaken by the Appellant in accordance with Rule 10B(4) for computing the margins of comparable companies. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow: Foreign exchange earning of Excel Infoways Ltd. Is 21.77%, which is less than 75% of the total sales, hence fails the filter adopted by the TPO. Employee cost ratio of Excel Infoways Ltd. After excluding purchases from total cost is 6.67% whereas that of the Assessee is 75.81%. Even after including purchases in total cost the ratio is 37.11% whereas that of the Assessee is 75.81%. Thus clearly indicating difference in functional profile, may be due to outsourcing. Fixed Asset turnover ratio of Excel Infoways Ltd. is 104.65% which is substantially higher than the Assessee 11.80%. Thus demonstrating difference in asset profile. Excel Infoways Ltd. Undertakes various business risks such as macroeconomic risk, global demand risk, market risk etc. whereas the assessee is free from all entrepreneurial risk. Thus demonstrating difference in risk profile. In AY 2013-14, Excel Infoways Lt. has earned an abnormally high margin of 75.90%. Even the year on-year trend of operating margin of this company reveals abnormal fluctuations. 13. Further she submitted, the DRP held that it is in agreement with the TPO s order in as much as Excel Infoways Ltd was sel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2010-11 253% 2,03,526.40 PB Pg. 166 2011-12 51.42% 79,096.95 PB Pg. 167 2012-13 71.17% 76,098.54 PB Pg. 168 2013-14 29.99% 52,972.12 PB Pg. 169 2014-15 2.02% 22,494.38 PB Pg. 170 *BPO Segment Closure of BPO segment to focus on Infra Excel Infoways had considered it reasonable to close down its BPO segment in the FY 2011-12 on account of global recession and had planned to diversify its business into new areas like construction, development of property, real estate etc. The above diminishing revenue trend also confirms this point. During the year, the income from IT segment declined on contrary income from infra activity showed exponential growth of 200% (PB pg. 181) Excel Infoways changed its name in the FY 2014-15 from Excel Infoways Ltd. To Excel Reality N Infra Ltd. indicating its intention of diversifying its activiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risks. Thus demonstrating difference in risk profile. 15. With regard to ground no. 9 10 in respect of disallowance u/s 36(1)(va) of the Act, Ld. AR submitted that Employee s contribution to provident fund ESIC deposited before the relevant authorities prior to the due date of filling the return of income u/s 139 of the Act. Ld. Therefore, such amount cannot be disallowed. Ld. AR further submitted that without prejudice to above, if the above expenses are disallowed then it shall be eligible to claim deduction u/s 10AA of the Act in respect of the expenses which related to SEZ units. 16. She brought to our notice the contention of the AO, assessee did not credit the sum to the employees account in the relevant fund on or before the due date mentioned in explanation in section 36(1)(va) . therefore, no deduction shall be allowed in computing the income refered to the section 28 of the Act. 17. Further, she brought to our notice to the submission before DRP, which is mentioned below:- Section 36(1)(va) was introduced to merely curb the defaulting employees from misutilising the employee s PF fund without depositing the same to the credit of employees fund at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TOTAL 4,95,38,284 11,55,81,010 16,95,63,014 20. She submitted that as per the below chart, in the respective year, the following amounts of business losses/ unabsorbed depreciation were carried forward and available for set-off. 21. Further she submitted that assessee has filed an application under section 154, providing all the relevant details in connection with above set-off of brought forward losses (refer Pages 309-312 of paper book). However, the AO is yet to dispose of the same. Further she relies on the decision of the coordinate bench decision in the Assessee s own case for AY 2012-13 whereby the bench has directed AO to decide the application of Assessee filed u/s 154 in seeking the setoff of brought forward business loss unabsorbed depreciation in accordance with law. 22. On the other hand, Ld DR submitted that the Excel Infoways Ltd functions are similar to assessee company and relied on the findings of TPO/DRP. With regard to employee contribution deposits, he relied on the findings of AO and with regard to issue of set off of unabsorbed business losses and unabsor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,86,040.74 2009-10 267.31% 2,04,161.34 2010-11 238.71% 2,03,526.40 2011-12 41.48% 79,096.95 2012-13 75.70% 76,098.54 20013-14 30% 52,972.12 2014-15 2% 22,994.38 17. The ld. AR for the assessee strongly relied on the decision of co-ordinate bench in Clear Info Analytics Private Ltd. vs. ACIT (supra) wherein this comparable was held to be not comparable with captive service provider holding as under: 6. We have heard rival contentions and perused the record. We noticed that the Pune Bench of the Tribunal examined the comparable company, M/s. Excel Infoways Ltd., in the case of M/s. Ocwen Financial Solutions Private Limited Vs. ACIT in ITA No. 2669/PUN/2016, dt. 21-01-2019. For the sake of convenience, we extract below the relevant discussions made by the Pune Bench of the Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (ITes) by the assessee to its AEs after affording reasonable opportunity of hearing to the assessee. Thus, ground No. 3 raised in appeal by assessee is allowed. In the case of Excel Infoways Limited, a chart provided before us wherein we have seen that there is fluctuating profit margins and IT(TP)A No. 2299/Mum/2017 following the same parity of reasoning, Excel Infoways Limited because of fluctuating profit margin, is to be excluded from the final set of comparables. 13. Further, the TPO has applied diminishing revenue filter to exclude the companies from the comparable set whereas, the revenue of Excel Infoways Limited also clearly demonstrated diminishing revenue trend. In such situation, we refer to the decision of Co-ordinate Bench of the Tribunal, Delhi in the case of Baxter India Pvt. Ltd. Vs. ACIT (supra.) where the Tribunal has held as follows: 24. So far as exclusion of Excel Infoways Ltd. is concerned, we also find merit in the submissions of the Id. counsel for the assessee that the above company should be excluded from the list of comparables. This company fails TPO's own filter of diminishing revenue and abnormal volatility in revenue and margins. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for Infra Activity segment. We, therefore, find merit in the argument of the Id. counsel for the assessee that the information provided as per section 133(6) by Excel Infoways Ltd. is unreliable and should not be used to compute employee cost for ITES segment The Delhi Bench of the Tribunal in the case of Motorola Solutions India Private Limited vide ITA No.5637/Del/2011 has held that a company should be rejected as comparable in case there is contradiction in the facts or data sourced from annual report and as per the information gathered u/s. 133(6). In view of above discussion, we hold that Excel Infoways Ltd. cannot be considered as comparable and should be excluded from the list of comparables. We hold and direct accordingly. Therefore, it is examined that both, Universal Print Systems Limited and Excel Infoways Limited cannot be considered as comparable companies with that of the assessee company. Hence, ground No. 4 is, thus, allowed . 7. We notice that M/s Excel Infoways Ltd was not considered as a comparable company for the reason that the profits of the company was declining and it was having super normal profits. The year-wise profit percentage would show IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s company fails TPO's own filter of diminishing revenue and abnormal volatility in revenue and margins. We find from the order of the TPO at para 7.5 (page 24 - 25 of the TPO order) where the TPO has observed that the department has applied consistent diminishing revenue/loss making filter wherein the companies with losses/diminishing revenue for the last three years upto and including the financial year 2010-11 were rejected as comparables. The department has excluded such companies with consistent losses/diminishing revenue in an environment where Indian economy is growing at consistent rate. Having held so, the Assessing Officer included Excel Infoways Ltd. as a comparable without considering the fact that the said company does not pass the diminishing revenue filter. From the submissions of the assessee before the TPO (at page 232 of Volume - 1 of the Paper Book) we find the details of the operating margin of the company from financial years 2009-10 to 201-15 are as under :- 25. From the above, it is clear that above company does not pass the diminishing revenue filter as adopted by the TPO himself since its revenue has decreased consistently ..... X X X X Extracts X X X X X X X X Extracts X X X X
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