TMI Blog2019 (7) TMI 1760X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 - N.V. Vasudevan, Vice President And Jason P. Boaz, Member (A) For theAppellant : K.R. Vasudevan, Advocate For the Respondent : C.H. Sundar Rao, CIT(DR-I) ORDER N.V. Vasudevan, Vice President 1. IT(TP)A No. 195/Bang/2016 is an appeal by the Assessee against the order dated 21.12.2015 of ACIT, Circle-3(1)(1), Bangalore (hereinafter referred to as the Assessing Officer, AO in short) passed u/s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (the Act) in relation to AY 2011-12. 2. IT(TP)A No. 459/Bang/2017 is an appeal by the Assessee against the order dated 22.12.2016 of the AO passed u/s. 143(3) r.w.s. 144C(13) of the Act in relation to AY 2012-13. IT(TP)A No. 195/BANG/2016 (AY 2011-12) 3. The Assessee is a wholly owned subsidiary of Fidelity National Financial International, Mauritius ( FNF Mauritius ) and is a captive service center of FNF Inc. The Assessee provides Information Technology Enabled Services (ITES) to its Associated Enterprise (AE). In terms of the provisions of Sec. 92A of the Act, the Assessee and its wholly owned holding company were Associated Enterprises ( AEs ). In terms of Sec. 92B(1) of the Act, the transaction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licom Ltd.) and worked out the average arithmetic mean of their profit margins and adjustment to ALP as follows:- C.6. Comparables selected by TPO and their arithmetic mean: Transfer Pricing adjustment proposed by the TPO: Computation of Arm's Length Price Price Received vis- -vis the Arm's Length Price Particulars Amount INR Operating Cost 30,73,91,430 Arm's Length Price @ 125.62% of operating cost 38,61,45,114 Price received 34,58,02,453 Shortfall being adjustment u/s. 92CA 4,03,42,661 6. Aggrieved by the aforesaid addition of ₹ 4,03,42,661/- to the total income of the Assessee, the Assessee filed objections before the Disputes Resolution Panel (DRP) u/s. 144C of the Act. The DRP excluded 8 out of the 10 comparable companies chosen by the TPO. As a result, only two companies remained for consideration pursuant to the order of the DRP viz., ICRA Online Ltd., and Jindal Intellicom Pvt. Ltd. The Pursuant to the directions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... os. 1, 2, 3, 3(a), 4, 5, 6, 7, 8, 9, 10, 11 12. The ld. AR pressed only ground related to the comparables in 3(b) with reference to R Systems International Limited. Other five comparables viz., Nittany Outsourcing Services Pvt. Ltd., Datamatics Financial Services Ltd., Caliber Point Business Solutions Ltd., Ultramarine Pigments Ltd. and Jindal Intellicom Ltd. are not pressed. 4. The first ground for consideration in this appeal is with regard to considering R Systems International Ltd. as comparable. 5. The assessee has selected in the transfer pricing documentation R Systems International Ltd. as a comparable company since it is functionally comparable and passing all the filters applied by the assessee in the TP documentation. However the lower authorities rejected that company on the basis that it has different year ending. Against this assessee is in appeal before us. The ld. AR submitted that R. Systems International Ltd. accounting period is January to December and assessee's accounting period is April to March, therefore that the assessee and R. Systems International Ltd. were operating for a period of 12 months accounting cycle. Since they were facing simila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Assessing Officer had applied the current year data as contemporaneous data to be used for benchmarking the arm's length price of international transactions of assessee. The assessee had prepared its financial statements for the financial year starting from 1st April, 2009 to 31st March, 2010. The case of assessee before us is that Jindal Intellicom Pvt. Ltd. has prepared its financial statements for period of 15 months and the same is not to be selected in the final set of comparables. 22. We find that the Pune Bench of Tribunal in the case of BMC Software India Pvt. Ltd. Vs. DCIT in ITA No. 1425/PN/2010, relating to assessment year 2006-07, order dated 16.03.2016 had rejected the concern having 15 months financials. 23. The Hon'ble Bombay High Court in the case of CIT Vs. PTC Software (I) Pvt. Ltd. in Income Tax Appeal No. 732 of 2014 had also held that the comparable data should pertain to the same financial year. Accordingly, we hold that the margins of concern having different accounting period cannot be selected for benchmarking international transactions and the same is to be excluded from the final set of comparables. Accordingly, we direct the Assessin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the Assessee. Therefore the TPO is directed to examine the comparability of this company, applying this filter also. 12. As far as the other reason given for excluding this company that segment details relating to the ITES segment are not available, is concerned, we find that this is not the reason assigned by the TPO for disregarding this company as comparable company. Secondly, the Assessee was not put on notice on this aspect by the DRP. Thirdly, the learned counsel brought to our notice page-97 of the Annual report of this company that the segmental results of the ITES segment is available. Therefore we deem it fit and proper to direct the TPO to consider the comparability of this company afresh. 13. As far as comparability of the company Informed Technologies Ltd., is concerned, it is undisputed that the Assessee in Annexure 1.16 of its objections to the draft assessment order of the AO, objected to the exclusion of this company from the list of comparable companies, but this objection was not considered by the DRP at all. We are of the view that in the light of the objections by the Assessee before the DRP against exclusion of this company by the TPO, the TPO shoul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that the DRP, Hyderabad in the case of Cordys Software India P. Ltd., for A.Y. 2008-09 in its directions dated 03.08.2012 has given a finding as under: 7.7. 4 Thus, working capital adjustment is made for the time value of money lost when credit time is provided to the customers. The applicant is not an entrepreneur but a captive service provider. Its entire funding needs are provided by the A.E. This being so, the applicant does not stand to lose anything as it is compensated on a total cost plus basis. The TPO probably was carried away by the large amount of receivables appearing in the books of the applicant. But the applicant is running its business without any working capital risk while comparable companies have such a risk for them. If at all any working capital adjustment is to be made to this situation, only a positive adjustment has to be made to the comparables so that they are brought on par with the applicant. In view of the same, the Panel directs that negative working capital adjustment to the arithmetic mean margin of the comparables shall not be made. In view of the above, the Panel directs that negative working capital adjustment to the arithmeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee in its TP study on the basis of comparable companies chosen by it, claimed that the price it charged in the international transaction should be considered as at Arm's Length. 19. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred to by the AO, accepted TNMM as the MAM and also used the same PLI for comparison i.e., OP/TC. The TPO selected a set of 10 comparable companies and worked out the average arithmetic mean of their profit margins and adjustment to ALP as follows:- 12.4 Computation of Arm's Length Price: The arithmetic mean of the Profit Level Indicator is taken as the arm's length margin. Please see Annexure B for details of computation of PLI of the comparables. Based on this, the arm's length price of the services rendered by the taxpayer to its AE(s) is computed as under:- Arm's Length Mean Margin on Cost 28.11% Less: Working Capital Adjustment (As per Annex. C) - 2.80% Adjusted margin 30.91% Operating Cost 39,62,49,237 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables. [Para 7.3] BNR Udyog Ltd. (Segment - Medical Transcription) The contentions of the assessee that the company BNR Udyog Ltd., is functionally different and fails the RPT filter at the entity level. It was found from the record that the benchmarking of selected company 'BNR' has been done only at the medical transcription segment and issue of RPT has not been urged before the Assessing Officer/DRP. Following the decision of the co-ordinate bench of ITAT Bangalore in the case of Indegene (P.) Ltd. v. Asstt. CIT [2017] 85 taxmann.com 60 for asst. year 2012-13, the issue of comparability of 'BNR' was remanded to the file for the TPO for fresh consideration on ground that in the year under consideration, there were 3 segments. How much of the RPT expenses pertain to each of the segments required examination and this aspect had not been analyzed by either the TPO or the assessee. While it is clear from the TPO's order that if the benchmarking is done only for the medical transcription segment, then the RPT pertaining to that segment only should be considered. However, since how much of the RPT pertain to the medical transcription segment has not been d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. as a comparable company. This company was not regarded as comparable company with the Assessee by the DRP for the reasons given in Para 2.15 of its order i.e., for the reason that in the financial results, the Auditors have mentioned that this company was predominantly a Business Process Outsourcing (BPO) company and therefore this company cannot be said to be an ITES company. The learned counsel for the Assessee brought to our notice that in the very same note, the auditors have also mentioned that the only reportable segment was BPO. Therefore this company was a BPO company and the results of the BPO which is the only segment ought to have weighed in the mind of the TPO to include this company as a comparable company. 25. We have considered the submission of the learned counsel for the Assessee and are of the view that the plea raised by the Assessee is correct and the TPO ought to have regarded this company as comparable company because the only reportable segment of this company was BPO. We direct the TPO to include this company as a comparable company. 26. In ground No. 14, the Assessee also seeks inclusion of a company by name Jindal Intellicom Ltd. as a comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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