TMI Blog2022 (3) TMI 1533X X X X Extracts X X X X X X X X Extracts X X X X ..... e turnover of the assessee at entity level. Also confirmed by HC [ 2015 (12) TMI 1076 - BOMBAY HIGH COURT] Thus section 92 of the Act can be applied only in respect of international transactions i.e., transactions with AE and the transfer pricing adjustment should be restricted only to the AE related transactions of the assessee. TPO/AO is directed to compute the ALP in the light of the directions as given above, after affording assessee opportunity of being heard. - ITA No.7/Bang/2022, IT(TP)A No.2042/Bang/2019 - - - Dated:- 7-3-2022 - SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B. R. BASKARAN, ACCOUNTANT MEMBER For the Appellant : Shri. Suresh Muthukrishna, CA For the Respondent : Shri. Sumer Singh Meena, CIT(DR)(ITAT), Bengaluru ORDER Per N. V. Vasudevan, Vice President: ITA No.7/Bang/2022 : This is an appeal by the assessee against the order dated 26.02.2018 passed by the Pr.CIT, Bengaluru 7 (CIT), under section 263 of the Income Tax Act, 1961 (hereinafter called the Act ), in relation to Assessment Year 2014-2015. 2. The assessee is a company that carries on business of back-office services and is a 100% export-oriented unit wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uant to the order passed under section 263 of the Act and no appeal need to be filed before the Tribunal. It has been further stated that in the consequential assessment proceedings under section 143(3) of the Act, pursuant to the order under section 263 of the Act, a draft Order of Assessment was passed on 31.08.2018 and the assessee approached the present Counsel Mr. Suresh Muthukrishna, CA, to file objection before the Dispute Resolution Panel (DRP). The DRP gave its direction on 28.05.2019. Pursuant to the directions of the DRP, the AO passed the final order of assessment dated 26.7.2019 against which the Assessee has filed appeal before the Tribunal which is ITA No.2042/Bang/2019 through Mr. Suresh Muthukrishna, CA. It appears that Mr.Suresh Muthukrishnan, CA also suggested to the assessee that an appeal can also be filed against the order under section 263 of the Act. Thereafter, the present appeal was filed with the delay of 1348 days. 6. We have considered the reasons given in the affidavit for condonation of delay in filing of the appeal and are of the view that the facts and circumstances of the present case for the delay cannot be accepted as a reasonable cause. The i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne the ALP on the basis of facts available on record. The TPO noticed that the assessee is a leading global business process management company. The assessee provides Information Technology enabled Services (ITeS) to its AE. The assessee also had transactions in ITeS with unrelated parties. The breakup of the services of income from related parties and unrelated parties is as follows: Particulars Basis of Allocation Domastic Transactions International transaction Total Related Praties Others Revenue from Operations(Gross) 4,27,23,164.00 14,42,12,112.00 32,56,93,611.00 51,26,28,887.00 Other Income 2,48,647.00 3,39,07,529.00 13,25,982.00 3,54,82,158.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Earning before Exceptional Items Tax- VII=(V-VI) 94,603.00 2,50,26,343.00 1,06,10,389.00 3,57,31,335.00 Less: Exeptional items- VIII Actual 11,69,690.00 11,69,690.00 Earning before Taxes- XI=(VII-VIII) - 10,75,087.00 2,50,26,343.00 1,06,10,389.00 3,45,61,645.00 Operting Profit - A - (IX+IV) 84,816.00 2,89,01,606.00 1,93,62,416.00 4,83,48,838.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n suggested by the TPO which was incorporated in the draft Order of Assessment by the AO, the assessee filed objections before the DRP. The DRP excluded BNR Udyog Ltd., from the list of comparable companies and confirmed the order of the AO in so far as it relates to the other comparables and other aspects of determination of ALP. The AO passed the final Order of Assessment dated 26.07.2019 incorporating the addition as suggested in the order of the DRP. The TPO suggested addition of Rs.10,73,87,230/-. But pursuant to the DRP s direction, the savings stood enhanced to Rs.11,28,18,726/-. Aggrieved by the aforesaid final Order of Assessment, assessee has preferred the present appeal before the Tribunal. 11. The learned Counsel for the assessee has prayed for exclusion of 3 out of the 5 comparable companies that remain after the order of the DRP viz., Infosys BPO Ltd., Eclerx Services Ltd., and Crossdomain Solutions Pvt. Ltd. As far as the plea for exclusion of the aforesaid companies from the list of comparable companies is concerned, learned Counsel for the assessee has filed before us a copy of the decision of the ITAT, Bengaluru Bench, rendered in the case of EMC Software and S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tems Management Consultants (P.) Ltd. (supra) cited by the assessee, this company 'Infosys' has been excluded from the List of comparables for the reason that it has brand value which had an impact on its pricing and margins. As the facts of the year under consideration are similar, the decision rendered in the earlier year would apply to the year under consideration as well. In this factual view of the matter, we hold that Infosys DPO Ltd., stands on a totally different footing from a company engaged in rendering routine back office ITES; being both functionally different and having brand value and therefore is to be excluded from the final set of comparables. We hold and direct accordingly. We find the judicial decisions, applicable for the Assessment Year 2014-15 and based on the observations of the co-ordinate Bench, we consider the company Infosys BPO Limited comparable has to be excluded and accordingly direct the TPO to exclude this company form the final list of comparables. E-Clerx Services Ltd., was excluded for the following reasons: (ii) E-Clerx Services Limited has a margin of 70.26% and engaged in both rendering KPO and BPO services and no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Symphony Marketing Solutions India (P.) Ltd. v. ITO [2013] 38 taxmann.com 55 (Bang - Trib) at paras 18 19 held as under : '18. This company was considered as a comparable and listed at Sl.No.8 of the comparables chosen by the TPO. It is the stand of the assessee that this company is not functionally comparable. As observed in the case of Coral Hubs Ltd., the TPO rejected the plea of the assessee on the basis of a non-existent TP order passed for the A.Y. 2007-08. It is seen that the business profile of this company is re-engineered payroll service. This company is also engaged in the development of information systems. These activities are totally different from the activities of the assessee which perform very limited/low end functions back office services. The review and business functions of Cross Domain is as follows: With a decade of experience in Payroll Outsourcing, Crossdomain has created a re-engineered payroll service EFFIPAY - that processes and delivers accurate payroll to clients with headcount up to 1000 employees in just 4 hours. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll, retrials, reimbu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a)the entities listed at serial nos.(i) to (iv) cannot be held to be comparable to the Respondent-Assessee. 6. So far as the entity listed at serial no.(v) above, namely Crossdomain Solutions Limited, is concerned the impugned order of the Tribunal has excluded it from the list of comparables. This by following its decision in Dy. CIT v. Wills Processing Services (India) (P.) Ltd. vide ITA No.2152/Mum/2014, dated 10-10-2014, Mr. Suresh Kumar learned counsel appearing for the Revenue states that inspite of his best efforts, the Revenue is unable to instruct him whether or not an appeal has been preferred against the order of the Tribunal dated 10 October 2014. in the case of Wills Processing Services under (P.) Ltd. (supra). 7. In the above view we proceed on the basis that no appeal from the order passed in Wills Processing Services under (P.) Ltd. (supra)has been filed by the Revenue. We further note that the impugned order records that the services provided by Crossdomain Solutions is in the nature of KPO ^Knowledge Process Outsourcing). 8. It is an agreed position between the parties that the entity at Sl. no.(v) above was a subject matter of consideration by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) We find that in terms of Chapter X of the Act, re- determination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered to with non-AE. This adjustment is beyond the scope and ambit of Chapter X of the Act. 5. In the above view, as the provisions of the Act in respect of transfer pricing are self evidence, Question No.(a) as proposed does not give rise to any substantial question of law. Thus not entertained. 14. The Hon'ble Bombay High Court in the case of Phoenix Mecano (India) Private Limited [ITA No. 1182 of 2014], had to deal with the following question of law suggested by the revenue:- 6.1 Whether on the facts and in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uestion of law arises for consideration. As such the appeal is dismissed with no costs. 15. In a similar case before the coordinated Bench of the ITAT Bangalore in the case of Kirloskar Toyota Textile Machinery Pvt. Ltd. v. ACIT [IT(TP)A No.1401/Bang/2010 held as under:- Taking into consideration of these factors, we accept the first fold of submission made by the learned counsel for the assessee and direct the Assessing Officer to confine the adjustment, qua the purchases made by the assessee from the AE. To be more specific, the adjustment is to be made only to the purchases made from the AE ..... 16. The ITAT Bangalore, in the case of IKA India Pvt Ltd, Bangalore Vs DCIT IT(TP)A No.2192/Bang/2017, order dated 17.09.2018, took a same view relying on the various judgments quoted above and held as follows: 53. The CIT(A) in exercise of his powers of enhancement of income took the view that the ALP has to be determined on the basis of the entire sales in the finished goods segment including transactions with Non-AE also. The reasoning adopted by the CIT(A) for doing so was as follows :- 10.0 While examining the working of ALP in the case of appellant, it wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons made before the CIT(A) that transaction with non-AE cannot be subject matter of determination of ALP because section 92 clearly speaks of determination of ALP only in respect of transactions with AE. He also referred to certain decisions of the Tribunal for the proposition that section 92 of the Act is not applicable to non-AE transactions. These decisions have already been extracted in the earlier paragraphs. The ld. DR relied on the order of the CIT(Appeals). 55. We have considered the rival submissions. The reasoning of the CIT(A) for considering the entire sales in manufactured finished goods segment for determination of ALP is that certain components and raw materials used in manufacture of finished goods are also sourced from AE and there is a possibility of the cost of such component having been bargained at a price which is not at arm's length. This presumption of the CIT(Appeals) is without any basis. He has not demonstrated with actual figures as to how there would be impact on profit margin on sale of finished products to AE because of purchases of some components from AE. He has given examples which are imaginary figures. Apart from this, the TPO has accep ..... X X X X Extracts X X X X X X X X Extracts X X X X
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