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TMI Blog2019 (10) TMI 1310X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer pricing adjustment made by the Ld. AO/Learned Transfer Pricing Officer ('Ld. TPO') to the international transaction pertaining to provision of back-office support services entered into by the Appellant with its Associated Enterprises ('AEs'). 2. The Hon'ble DRP erred in confirming the addition to income of the Appellant to the extent of INR 50,13,634 by holding that the Appellant's international transaction pertaining to provision of back-office support services does not satisfy the arm's length principle envisaged under the Act. In doing so, the Hon'ble DRP has grossly erred in confirming the Ld. AO/Ld. TPO's action of: 2.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2. disregarding the Arm's Length Price (,ALP') as determined by the Appellant in the Transfer Pricing (,TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 2.3. disregarding prior years' data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2011-12) dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AEs. 3. Ld. TPO accepted all the international transactions undertaken by the taxpayer during the year under assessment at arm's length except international transactions qua provisions of business support services. The taxpayer in its TP study qua provisions for back office support services claimed that it is providing Information Technology Enabled Services (ITES) to its AEs, selected itself as the tested party and applied Transactional Net Margin Method (TNMM) as the Most Appropriate Method (MAM) with OP/OC as Profit Level Indicator (PLI), taken seven comparables with mean margin of 13.62% as against margin of the taxpayer @ 10% of cost and found its international transactions at arm's length. However, the ld. TPO after applying various filters, which are not now under challenge, finally selected 9 comparables with average OP/OC at 20.44% and proceeded to compute the Arm's Length Price (ALP) of international transactions as under :- Operational Cost A 8,09,95,709 Arm's Length Price at a margin of 20.44% B=A* 120.44% 9,75,51,232 Price Received C 8,90,95,280 105% of the Price Received C* 105% 9,35,50,044 Proposed Adjustment u/s 92CA B-C 84,55,952 4. TPO accordingly prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ches of the Tribunal in Inductis India (P.) Ltd. vs. ACIT (2019) 101 taxmann.com 110 (Delhi-Trib.), Agilis Information Technologies India (P.) Ltd. vs. ACIT - (2018) 89 taxmann.com 440 (Delhi) and Shipnet Software Solutions India vs. DCIT - (2017) 81 taxmann.com 301 (Chennai - Trib.). 11. However, ld. DR for the Revenue on the other hand in order to repel the arguments addressed by the ld. AR for the taxpayer relied upon the order passed by the ld. DRP and contended that the ld. DRP has dealt with all the arguments raised by the ld. AR before the Tribunal. 12. When we examine the annual report of Acropetal, relevant page 140 of the annual report compilation, it goes to prove that Acropetal is involved in product and is also developing IP, relevant portion of business profile is as under :- "IP & Product Development The Company has been making consistent investments in developing intellectual properties and products that can help the Company to grow non-linearly. Acropetal Inc. (HQ in CA, USA) will drive the IP development efforts while Acropetal Technologies will develop and deploy solutions to consumers globally. The Company has a strong pipeline of 7 IPs which will be devel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Ltd (segment): It has been submitted by the Ld. AR that this company is engaged in provision of healthcare services which include Electronic Medical Record, patient life cycle management, physical and clinical life cycle management, hospital administration management and disease life cycle management. It has also been submitted that segmental bifurcation pertaining to the various revenue streams was not disclosed. We find that these averments of the AR are correct. We also note that this company was directed to be excluded by the ITAT Delhi Bench in the case of Agilis Information Technologies Pvt. Ltd vs. ACIT reported in (2018) 89 taxmann.com 440 (Delhi - Trib.) on the ground that Acropetal Technologies Ltd. was engaged in provision of high end healthcare services and owns intellectual property. It has also been noted by the ITAT Delhi Bench that this company was engaged in sale of software products. Undisputedly, the assessee company i.e. Inductis India Pvt. Ltd. is a captive IT enabled service provider and, therefore, this cannot be compared to the services being offered by Acropetal Technologies Ltd. We also note that segmental data is not available for the year under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not available. Furthermore, TCS E-Serve is a significant risk bearing company such as macro-economic risk, regulatory risk, financial risk etc., as is evident from annual report compilation under the head Risk and Risk Mitigation which includes macro-economic risks, ability to hire and retain, data protection, technology, network and telecommunication risks, risk from operations, financial risk, legal & statutory liabilities risk etc. whereas taxpayer is not providing low end support services on cost plus basis being a captive service provider. 19. Even otherwise, TCS E-Serve is having significant ownership of intangibles and it is a brand in itself as it has made payment for Tata brand equity contribution of Rs. 3.67 crores during the year under assessment, as is evident from Notes to Financial Statement, available at page 81 of the annual report compilation. Furthermore, when we examine the scale of operation of TCS E-Serve at page 66 of the annual report compilation, its total revenue is Rs. 1733.34 crores as against revenue of the taxpayer at Rs. 8,90,95,280/-. 18. Exclusion of TCS E-Serve has been upheld by the Hon'ble Delhi High Court in Avaya India Ltd. (supra) on grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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