TMI Blog2020 (2) TMI 1632X X X X Extracts X X X X X X X X Extracts X X X X ..... f the turnover of BPO segment is considered it is less than Rs.1 Crore and this company fails to satisfy the TPO's own filter of service revenue from the relevant segment having to be in excess of Rs. 1 crore as the revenue from the BP0 segment of the said company is Rs. 79 lakhs only. The company is therefore not comparable to the Assessee and the DRP's findings on exclusion of Jeevan are right in law and ought not to be interfered with. iGate Global Solutions Ltd. ( iGate ) is engaged in provision of varied services and no segmental breakup of the same is available in its Annual Report. Further. the company's' software services segment is clubbed with its ITEs segment and there is no breakup between the revenues generated from the two segments. During the year under consideration, this company had acquired majority equity interest in Patni Computer Systems Ltd. rendering it incomparable due to it failing the TPO's own filter of having peculiar economic circumstances. In addition, the company owns significant intangibles in its name, which is evident from the balance sheet of the company for the Financial Year 2010-11 - We are of the view that the above reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g/2016 - - - Dated:- 20-2-2020 - Shri N.V Vasudevan, Vice-President And Shri B.R. Baskaran, Accountant Member For the Revenue : Shri .Muzaffar Hussain, CIT (DR). For the Assessee : Ms. Tanmayee Rajkumar, Advocate. ORDER PER SHRI N.V VASUDEVAN, VICE-PRESIDENT: This is an appeal by the Revenue against the final order of assessment dated 18-01-2016 passed by the ACIT, Circle -1(1)(1), Bangalore u/s 143(3) r.w.s 144C(13) of the Income Tax Act, 1961 (Act) relating to assessment year 2011-12. The Assessee has also filed a Cross Objection against the very same order of Assessing Officer. We shall first take up for consideration the appeal by the revenue. 3. The Assessee is a wholly owned subsidiary of Aon Mauritius Holdings (Aon Mauritius) with the exception of one share which is owned by Aon group International B.V, the Netherlands. The Assessee is engaged in providing information technology enabled analytical, research and support services ( ITES ) to its Associated Enterprises ( AEs ) through a master services agreement with Aon services Corporation, USA ( Aon Service Corp.) for which it is remunerated on a cost plus basis. 5. During the relevant previ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Arm s Length Price (ALP) in respect of an international transaction for rendering information Technology Enabled Services (ITES) by the assessee to its Associated Enterprise (AE). Details of International Transactions in dispute : Particulars Amount in Rs. Provision of ITeS 44,92,78,673/- Net margin on cost earned by the Assessee as computed by the TPO in the TP Order: Operating Income Rs.44,92,78,673/- Operating Cost Rs.38,45,04,649/- Operating Profit (Op. Income -Op. Cost) Rs.6,47,74,024/- Operating/Net margin (OP/OC) 16.84% There is no dispute that the Transaction Net Margin Method (TNMM) was the most appropriate method (MAM) for determination of ALP and the Profit Level Indicator (PLI) chosen for the comparison of Assessee s profit margin with that of the comparable companies was Operating Profit on Operating Cost (OP/OC). In its Transfer Pricing (TP) study, the Assessee had chosen 14 Comparable companies and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10.18 4 e4e Healthcare 12.38 13.64 5 ICRA Online Ltd. (seg.) 34.21 32.78 6 Jeevan Scientific Technology Ltd. 70.66 71.14 7 Infosys BPO Ltd. 17.89 15.72 8 Jindal Intellicom .11.13 11.37 9 Mindtree Ltd. (seg.) 10.76 8.59 10 iGate Global Solutions Ltd. 25.07 24.26 AVERAGE MARGIN 24.77 23.62 10. The TPO Computed arm's length price and addition to the total income consequent to the determination of ALP as follows: Arm's Length Mean Margin 24.77% Less: Working Capital Adjustment 1.15% Adjusted mean margin of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eflected in the order of the TPO and in the grounds of appeal which is to the effect that there cannot be any difference between Knowledge Process Outsourcing (KPO) and Business Process Outsourcing (BPO). The learned counsel for the Assessee placed reliance on the decision of this Hon'ble Tribunal in Swiss Re Shared services (India) Pvt. Ltd. v. ACTT (order dated 08.07.2016 in IT(TP)A No. 380/Bang/2016) and e4e Business Solutions India P. Ltd v. DCIT [Order dated 13.01.2017 in IT(TP)A No.1397/Bang/2016] where, in the case of assessees similar to the assessee herein for the same assessment year, the company was directed to be excluded from the list of comparables. 14. We have considered the rival submissions. We find that as per the Annual Report of the company for the year ending 31st March 2010, the company is engaged in provision of a variety of IT enabled services comprising of Enterprise solutions, IT Infrastructure Management Services, Cloud Services, Greenhouse Gas Management, unlike the Assessee who is a provider of routine IT enabled services. Further, the company is engaged in provision of engineering design services which are in the nature of high end IT enabled se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO's own filter of service revenue from the relevant segment having to be in excess of Rs. 1 crore as the revenue from the BP0 segment of the said company is Rs. 79 lakhs only. The company is therefore not comparable to the Assessee and the DRP's findings on exclusion of Jeevan are right in law and ought not to be interfered with. In this regard we find that this Hon'ble Tribunal in Swiss Re Shared services (India) Pvt. Ltd. v. ACIT (order dated 08.07.2016 in IT(TP)A No. 380/Bang/2016) directed the TPO to verify as to whether the TPO's filter of Sales 1 Crore is satisfied by this company. In the present case, the DRP has examined the same and has given a finding that the filter of sales Rs. 1 crore is not satisfied. Therefore the exclusion of this company as a comparable company by the DRP does not require any interference. 16. As far as exclusion of iGate Global Solutions Ltd. ( iGate ) is concerned, the finding of the DRP is that i-Gate is engaged in provision of varied services and no segmental breakup of the same is available in its Annual Report. Further. the company's' software services segment is clubbed with its ITEs segment and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e reduced from its export and total turnover by following the judgment of the Hon ble High Court of Karnataka in CIT Vs Tata Elxsi Ltd. 349 ITR 98 (Karnataka). In Ground no.5 6 in its appeal, the revenue is challenging the DRP s directions to the extent it directs that the expenses referred to above should be excluded from the export turnover as well as its total turnover while computing the deduction allowable u/s 10A. We are of the view that the order of the DRP does not call for any intereference as it is in accordance with the binding decision of the jurisdictional High Court in CIT Vs Tata Elxsi Ltd., reported in (2012) 349 ITR 98 (Kar.) Therefore, Gr.No.5 6 raised by the Revenue is therefore dismissed. In view of the alternative relief allowed as above, we are of the view that ground no.13 to 15 raised by the assessee in its cross objection in which the Assessee has prayed that the sums excluded from Export turnover in fact ought not to have been so excluded as per the definition of Export Turnover as defined in Sec.10A of the Act, do not require any adjudication and are accordingly, dismissed. 19. The only other grounds that remain for adjudication is ground no.7 to 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision of the Hon ble ITAT in assessee s own case in respect of similar payment in assessment year 2008-09 in ITA No./1640(B)/2012 CO No.63(B)/2013. 21. Aggrieved by the order of CIT(A), the revenue has raised ground no. 7 to 9 before the Tribunal. At the time of hearing, it was submitted by the learned counsel for the assessee that provision of sec.40(a)(ia) of the Act, can be invoked only when there has been non-deduction of tax at source. It was submitted that in the present case, there was a deduction of tax at source, but the tax deduction was at lesser rate u/s 192 of the Act, whereas according to revenue the tax deductible was at a higher rate in terms of sec.195 of the Act. It was the plea of the assessee that there was no non-deduction of tax at source, but there was only short deduction of tax at source and no disallowance u/s 40(a)(ia) of the Act can be made for short deduction of tax at source. In this regard learned counsel for the assessee placed reliance on the decision of the Hon ble Karnataka High Court in the case of CIT Vs Kishore Rao Others(HUF) (2017) 79 Taxmann.com 357(Kar.). The aforesaid decision of the Hon ble Karnataka High Court was placed with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al or HUF, whereas, it is 2% of the contractor is other than individual or HUF. The Tribunal, in view of facts and circumstances, found that, it is a bona fide wrong impression. 8. As such, on the aspects of the bona fide wrong impression keeping in view the contention of the assessee that in the middle of year, there is change of law about the deduction, as well as on the non-availability of the provisions of section 40(a)(ia), when the issue is covered by the Calcutta High Court judgment in case of S.K. Tekriwal (supra) we do not find any substantial question of law would arise for consideration as sought to be canvassed . 22. The ld. DR however, placed reliance on the order of AO and made reference to case laws for the proposition that the payment in question was in the nature of fees for technical services rendered, but could not address specific plea raised by the assessee before us. 23. In this regard our attention was also drawn to objection no.5 by the assessee before the DRP in form no.35A of the Act, in which the following contentions were raised by the assessee. Ground of objection no. 5 The learned AO has erred in law and facts, is disallowing ..... 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