9911796707
TMI Blog2019 (2) TMI 1890X X X X Extracts X X X X X X X X Extracts X X X X ..... s No.2(a), 2(b), 2(e), 2(f), 2(g), 2(h), 2(i), 2(j), 2(k), 2(l), 2(m) and 2(n) and ground No.3, non-cognizance to rectification application filed before the TPO not pressed and ground No.4, non-allowance of appropriate adjustments to the comparable companies being 4(a)and 4(b) not pressed ground No.8, directions issued by the DRP, ground No.9 penalty proceedings and ground No.10 are also not pressed. Hence, the effective grounds of appeal are ground Nos.2(c), 2(d), 5, 6 and 7. which read as under: "2. Determination of arm's length price of international transactions c) The Ld. TPO erred in law in applying arbitrary filters to arrive at a fresh set of companies as comparable to the Appellant, without establishing functional comparability. The Ld. Panel/ AO erred in upholding the actions of the Ld. TPO. d) The Ld. TPO also erred on facts in arbitrarily accepting companies without considering the turnover and size of the Appellant and comparable companies. The Ld. Panel/ AO erred in upholding the actions of the Ld. TPO. 5. Mark-up on recovery transactions The Ld. TPO erred in facts and circumstances of the case and in law, in determining the transfer pricing adjustment afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f information technology, business and knowledge process outsourcing and infrastructure management services to SG Groups business lines around the world and is a captive service provider which provides software development and IT enabled Services to its Associated Enterprises (AE) and also provides back office software development and IT enabled services across group entities in the domain of Corporate and Investment Banking, Retail Banking, specialized Financing and insurance, private banking and global investment management and services and resource group. 6. The assessee filed the Return of income electronically on 29/11/2012 with total income of Rs. 39,71,86,840/- and the Return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny and notice u/s 143(2) and 142(1) were issued. In response, the learned AR of the assessee appeared from time to time and filed details and clarifications in the assessment proceedings. Whereas the AO, on perusal of transfer pricing study report and the Report in Form 3CED, found that the assessee has international transaction exceeding Rs. 15 crores and has referred to the TPO for determination of ALP with p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Systems Ltd. vii. TCS e-Serve Ltd. viii. BNR Udyog Ltd.,(Seg)(Medical Transcription) ix. Excel Infoways Ltd., x. E4e Healthcare Services Pvt. Ltd., 9. The TPO applied TNMM method and the PLI has been worked out at 28.11%. The TPO considered the judicial decisions and worked out the effect of economies of skill and working capital adjustment and risk adjustment and ALP in para. 12.4 as under: IT ENABLED SERVICES Arm's Length Mean Margin on cost 28.11% Less: Working Capital Adjustment -2.28% (As per Annex. C) Adjusted margin 30.39% Operating Cost 888,483,270 Arm's Length Price(ALP) 130.39% of Operating Cost 1158493336 Price Received 103,37,06,859 Shortfall being adjustment u/s 92CA: 14,52,23,589 5% of price received 5,16,85,343 Since the shortfall is exceeding 5% of the International Transaction, adjustment is made The TPO passed the order u/s 92CA dated 29/01/2016 with adjustment to the ALP after giving mark up of 5%. The ld.AO, based on the TPO's order where suggesting the ALP adjustment of Rs. 14,52,23,589/- computed the total income of Rs. 54,24,10,429/- and passed the assessment order u/s 143(3) of the Act dated 22/02/2016 which was forw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation Systems & Management Consultants (P) Ltd. vs. ACIT (2018) 94 taxmann.com 97(Bang.Trib) - para 52, page 21 of the order which reads as under: "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 from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro. Label Printing, Offset Printing and Pre-press BPO. Whether the label pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of Rs. 5.54 crores and marketing expenses of Rs. 1.54 crores for brand building and referred to pages 930 and 931 of the paper-book. Similarly, peculiar economic circumstances being acquisition of 100% stake in Portland Group during the year and the forex is treated as non-operating and referred to page 932 of the paper-book and the turnover higher Rs. 1316.75 crores which is outside 10 times range. Learned AR emphasized that Infosys BPO was excluded by the Tribunal considering the brand value and extraordinary event during the year and referred to paras.45 & 46 of the order of Tribunal in the case of CGI Information Systems & Management Consultants (P) Ltd. (supra) which reads as under: 45. We have considered the rival submissions. In the case of Baxter (I) (P.) Ltd., (supra) the Delhi ITAT Bench considered comparability of the aforesaid three companies with a company engaged in providing ITBS such as the Assessee. The functional profile of the Assessee and the Assessee in the case of Baxter (I) (P.) Ltd. (supra) are identical inasmuch as 7 out of the 10 companies chosen by the TPO in the case of the Assessee were chosen as comparable in the case of Baxter (I) (P.) Ltd. (supra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16.1 Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) for assessment year 2012-13, he submitted that this company was examined by the Tribunal and the Tribunal directed the Assessing Officer/TPO to exclude Infosys BPO Ltd. on account of high turnover. Referring to the decision of Delhi Bench of the Tribunal in the case of Actis Global Services Pvt. Ltd. (supra), he submitted that Infosys BPO Ltd. was directed to be excluded from the list of comparables on the ground of huge turnover. Further, it was also held that Infosys BPO Ltd. cannot be considered as comparable to a captive service provider. Similar view has also been taken by the Mumbai Bench of the Tribunal in the case of Maersk Global Service Centers (India) (P.) Ltd. v. ITO [IT Appeal No. 1082 (Mum.) of 2015, dated 297-2016] for assessment year 2010-11. This company was directed to be excluded on the ground that this belongs to Infosys Group thereby carries the goodwill and brand value of the group and it has got high turnover, apart from being functionally different from that company. He accordingly requested that Infosys BPO Ltd. sho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 345/Del/2016 and company was excluded from the list of comparables while computing the average margin of comparables. 14.1 Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India (P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 2315 (Bang.) of 2016, dated 13-4-2017] for the assessment year 2012-13, he submitted that the Tribunal had directed the Assessing Officer/TPO to exclude TCS e-Serve Ltd. from the list of comparables on account of high turnover." We find the comparable TCS-e-Service was excluded due to its Brand value and KPO services and size of operation in above decision and accordingly we rely on decision and direct the TPO to exclude the same for ALP. 16. On the comparable company selected by the TPO viz., BNR Udyog Ltd., the learned AR's contention that the margin side 48.55% and the turnover being Rs. 1.47 crores, fails RPT filter and also fails export turnover filter. The contention of the learned AR is that the said company is in medical transcription and medical billing and coding and performs KPO services, fails RPT filter and service turnover filter supported his argument referring to page 922 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing adjustment. Accordingly, we uphold the action of the TPO and dismiss the submission of the assessee for exclusion. 17. The last comparable being Excel Infoways Ltd., where the turnover is Rs. 7.90. The contention of the learned AR that it is functionally not comparable and fails ITeS revenue filter and employee cost filter. The learned AR substantiated his argument and relied on the abstract of Annual Report of the comparable company, where the said company is divided into ITeS and Infra activities and is functionally not comparable. The co-ordinate bench of Tribunal in the case of CGI Information Systems & Management Consultants (P) Ltd. (supra) has dealt on exclusion , and the Delhi Tribunal in the case of Baxter India Pvt Ltd. (supra), para.25 which reads 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 from financial years 2009-10 to 2011-12 i.e. including the year under consideration. Further, the above company has super normal profits. We further find the submissions of the assessee that Excel Infoways Ltd. has super normal profits duri ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
