TMI Blog2022 (5) TMI 1423X X X X Extracts X X X X X X X X Extracts X X X X ..... URT] as well as co-ordinate Bench in Gulf Energy Maritime Services Pvt. Ltd. [ 2016 (3) TMI 216 - ITAT MUMBAI] . In view of this, we hold that assessee can adopt other method prescribed under Rule 10AB of the Income Tax Rules as the most appropriate method for benchmarking services income received by the assessee from its associated enterprises. Also assessee has submitted additional evidence in the form of comparables quotations from third party service provider in support of rates charged by the assessee. We find that these evidences at page no. 463 of the Paper Book is the rate quoted by Enser Communication Pvt. Ltd to the Associated Enterprises on 6th January 2020, of $ 10 per login hour. Similarly, at page no. 475 Rhombus on 14th September 2012 has quoted man hour rate of $ 8.5. Further at page no. 475 Synergies outsourcing Pvt. Ltd. vide quotation dated 28th January 2020 has also given the rate of $ 10 per man-hour. As these quotes are available with the Associated Enterprises for similar services, therefore, the FAR of these quotes are similar with the agreement of the assessee, hence, comparable. However, we hastened to say that website rates could not be accept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in law by considering the Transactional Net Margin Method (TNMM') as the most appropriate method for benchmarking the international transaction of the provision of services to its Associated Enterprises. 1.3. On the facts and circumstances of the case and in law, the DRP/TPO have erred in not considering the 'Other Method' prescribed under Rule 10AB of the Income-tax Act as the most appropriate method for benchmarking the services rendered by the Appellant to its AE. The DRP/TPO have erred in ignoring the additional evidence in the form of comparable quotes obtained from third-party service providers in support of an hourly rate of USD 10 charged by the Appellant to its Associated Enterprises. The DRP/TPO have also erred in ignoring the hourly rates payable for similar low-value services available in the public domain submitted by the Appellant during the DRP proceedings. 1.4. The DRP/TPO have erred in considering the following companies as comparable to the Appellant under TNMM though the same are not functionally comparable to the Appellant. HCL Global Processing Services Ltd. Inteq BPO Services Pvt. Ltd. Manipal Digital Systems Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned Transfer Pricing Officer for determination of arms length price. The assessee has adopted Transactional Net Margin Method [ TNMM] as the most appropriate method. The assessee states in its transfer pricing study report that its associated enterprises has outsourced certain call center services to the assessee and except exchange risk, the assessee is a risk from entity. Assessee has charged to its Associated Enterprises on the basis of login hour rate of USD 10. The assessee has incurred the total operating cost of ₹14,93,44,560/- against the operating revenue of ₹15,68,06,068/- thereby, resulting into operating profit of ₹74,61,508/- resulting into a margin (OP/OC) of 4.8%. 04. The learned Transfer Pricing Officer examined the transaction and found that assessee did not take into account comparability study despite stating that Transactional Net Margin Method is the most appropriate method. The Transfer Pricing Officer further noted that the assessee has merely stated that login hour rate charged to its Associated Enterprises of 10 USD can be said to be arm s length price of the transaction. The learned Transfer Pricing Officer stated that rule 10( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Assessing Officer passed the final order on 21st April, 2021 making an adjustment of ₹2,21,23,649/- to the total income on account of Arm s Length Price of international transaction. Assessee is aggrieved with that and has preferred this appeal. 07. The learned Authorized Representative firstly referred to the Transfer Pricing study report paced at page no. 336 of the Paper Book to show that assessee has exported international calls center services and earned revenue of ₹15,68,06,068/-from its Associated Enterprises namely; First Credit Services Incorporation USA. He also referred to the various functions performed by the assessee. He also referred to the agreement placed at page 360 of the Paper Book. He submitted that as per clause no. 2 of the agreement, assessee is required to provide several services namely; customers, debtor records, call center services, training, operations management, reporting, data management and back up and quality assurance. He also referred that minimum 70 fully trained customer services associates (CSA) are required to be employed by the assessee. He referred to clause 2.2 to show that assessee shall receive the services charged of USD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the Rules. He submitted that request of the assessee to change the most appropriate method is for bona fide reasons and not in an arbitrary manner. He submitted that now the quotes are available of identical services therefore, it should be applied. 08. He further referred to Rule 10AB, where other method is also stated to be acceptable method of transfer pricing analysis. He submitted that the quotations of the work could also be considered as the acceptable comparable prices. He first referred to the decision of co-ordinate Bench in 51 taxmann.com 942 (Del) in case of Toll Global forwarding India Pvt. Ltd., wherein it has been held that other method can be applied retrospectively. He also referred to Para no. 20 of that decision to support that the change of method requested is not for diverting the adjustment made but for better determination. He further referred to the decision of co-ordinate bench in case of Gulf Energy Maritime Services Pvt. Ltd. (TS-74-ITAT-2016 (Mum) TP) that quotation etc can also be considered for computing the Arm s Length Price while adopting the other method as most appropriate method. In view of this, he submitted that other method should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rprises on terms and conditions mentioned at Paragraph 2 of that agreement which is as under:- 2. TERMS AND CONDITIONS OF ENGAGEMENT 2.1 FCS hereby retains FCITES to provide Services in the manner set forth below and FCITES hereby accepts such engagement. a) Customers - FCITES will provide Services in India to FCS Customers as requested by FCS b) Debtor Records - Debtor Records or access there to shall be provided to FCITES by FCS in a manner agreed upon by the Parties. c) Call Centre service - FCITES will utilize the Call Centre located at an Authorized Service Location for delivery of Services The Call Center will be equipped with telephone systems, computer systems, and various FCITES support and call monitoring tools, such as documentation and knowledge bases, to be used in the delivery of the Services FCITES shall bear all expenses of operating the Call Center, including insurance all expenses for equipment and systems necessary to connect to any telecommunications circuits or facilities utilized by FCS to bring calls to the Call Center. FCS shall provide FCITES with a list of the required minimum capabilities that FCITES shall maintain with respect to the Call ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l customer, then FCS can immediately reduce the number of CSA rendering Third Party Services by thirty (30) CSA per month. l) Billable Login Hours - FCITES can bill maximum 160 hours for per FTE's (Full) Time Employee). FTE's count should be more than 60 for every month. This includes CSA's who are moved to floor during the month. FCITES cannot bill for break time, team discussion, absenteeism, preparation for start and finish shift time FCS has agreed that FCITES can recruit more CSAS to cover up floor performance FTE's count may go down beyond 60 with reference to section 21.k 2.2 FCS shall receive all of the revenue generated from the provision of Third Party Services to Customers and shall pay FCITES for Services performed in India the rate of $10.00 per Productive Hour for fully-trained CSA's only FCITES will take care for Training Services performed in India as and when required FCS shall not be responsible for any costs or expenses, such as supervisory related expenses, that FCITES may incur to monitor and manage the quality of the Third Party Services that it is rendering under this Agreement. FCS shall pay employee incentives or bonuses as determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther than an Authorized Service Location, FCITES shall obtain the prior written consent of FCS, which consent may be withheld at FCS's sole discretion (b) If FCITES provides the Services to FCS in breach of Section 2.9(a), then FCS at its sole discretion may (a) immediately terminate this Agreement and recover any damages to which it is entitled; (b) require continuation of the Services entirely within an Authorized Service Location and/or (c) execute a modification to this Agreement to incorporate the newly agreed Authorized Service Location. 2.10 Audit Rights (a) FCS, and/or its authorized representatives ( Auditor ), shall have the right at any time, with notice of at least five (5) business days, to perform an audit with respect to FCITES's rendering of the Services and its performance hereunder. Subject to and without compromise to FCITES's obligations of confidentiality to its other clients, FCITES shall grant the Auditor full and complete access, during normal business hours and upon reasonable advance notice in writing as aforementioned, to any and all relevant portions of FCITES's books, records and any other information as they relate to this Agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conduct its own internal or external audit ( FCITES's Audit ) to test adequacy of FCITES's internal control environment at least annually and at FCS's request submit a copy of such audit report to FCS. 013. According to the terms of agreement, the assessee is remunerated at the rate of US$ 10 per productive hour of customer services associates. On looking at the transfer pricing study report, we find that the assessee did not benchmark this international transactions with any comparability study, but merely stated that as assessee does not provide similar services to third parties and no other service transactions reveals the nature of terms and conditions of services provided, Arm s Length Price data are not available. Therefore , assessee submitted that login hour rate charged to Associated Enterprises at US$ 10. It computed the Net Margin at 4.8% and therefore, stated in its Transfer Pricing study report that transactions are at Arm s length. We find that the transfer pricing study report prepared by the assessee does not give any guidance and does not give any idea about the comparability study of the international transaction to hold that same are at arm s-len ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y It should be the one best suited to the facts and circumstances of each international transaction and It provides the most reliable measure of the arm's length price. Both these conditions are cumulative. Further, according to Rule 10C(2), in selecting the most appropriate method, the most important factors shall be availability, coverage and reliability of data necessary for the application of method and the degree of comparability between international transaction and the uncontrolled transaction and between the enterprises involved. For Application of TNMM, assessee has no justification and comparable selected by TPO are seriously disputed. In TP analysis Where a traditional transaction method and a transactional profit method can be applied in an equally reliable manner, the traditional transaction method is preferable to the transactional profit method. In the Present case applicability of TNMM is without any basis or comparability analysis. As has been held by the coordinate Bench decisions in case of Mattel Toys Limited [Supra] of Sudarashan Chemicals Limited [ Supra] that there is no bar in change of method provided it results into better appreciation of facts and m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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