TMI Blog2023 (5) TMI 1236X X X X Extracts X X X X X X X X Extracts X X X X ..... formation u/s 133(6) of the Act is not made available to the TPO, in such circumstances, T.P. adjustment on this count cannot be made reasonable or accurately made in this regard. Accordingly, this company is to be excluded from the list of comparable companies as reliance placed by this Tribunal while deciding this issue in assessee s own case on the decision of Zyme Solutions Pvt. Ltd. [ 2018 (11) TMI 1793 - ITAT BENGALURU] . Accordingly, we direct the AO/TPO to exclude this company. - IT(TP) A Nos. 58 & 59/Bang/2023 - - - Dated:- 17-5-2023 - Shri Chandra Poojari, Accountant Member And Smt. Beena Pillai, Judicial Member For the Appellant : Shri S.P. Chidambaram, A.R. For the Respondent : Shri Sankar Ganesh K., D.R. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER : These two appeals by assessee for the assessment years 201112 2012-13 are directed against different orders of DCIT Circle-1, Mysuru dated 12.12.2022 and 9.12.2022 respectively passed u/s 254 r.w.s. 92CA(3) r.w.s. 143(3) r.w.s. 92CA r.w.s. 144C(13) of the Act. IT(TP)A No. 58/Bang/2023 for the AY 2011-12: 2. First, we will take up IT(TP)A No.58/Bang/2023 for the AY 2011-12. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said company for its BPO operations is less than Rs.1 crore it has to be excluded from the list of comparables. 18. The ld DR relied on the order of the DRP. 19. After considering rival submissions, we are of the view that based with judicial precedent cited by the ld counsel for the assesee, Accentia Technologies Ltd., and Acropetal Technologies Ltd., should be excluded from the list of comparable companies. As far as ICRA Online Ltd. is concerned, the RPT in the case ICRA Online Ltd., needs to be verified by the TPO and if the RPT is more than 15% of the total revenue of this company then the same should be excluded. As far as Jeevan Scientific Technology is concerned, the TPO is directed to examine the comparability of this company as was directed by the Tribunal in the case of Swiss Re Shared Services India Pvt. Ltd., (Supra). The TPO is directed to compute the ALP as per the directions given above after affording opportunity of being heard to the assessee. 2. While giving effect order to the above finding of Tribunal, the AO/TPO included Jeevan Scientific Technologies Ltd. in the list of comparables. Now the ld. A.R. wanted to exclude Jeevan Sci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3.6 He submitted that the Learned AO/ DRP/ TPO erred in including M/s. Jeevan Scientific Solutions even though the company fails TPOs own filter of service income being greater than 75 percent of total operating revenue. 3.7 The ld. A.R. submitted that the Learned AO/ DRP/ TPO ought to have appreciated that the revenue from BPO services amounts to only INR 79.21 Lakhs thereby constitutes only 32 percent of the total revenue from operations and hence fails the filters applied by the TPO himself. 3.8 He submitted that learned AO/ DRP/ TPO had erred in law and on facts by not appreciating that even the combined revenue from BPO Segment and ERP Segment is less than 75 percent of the total revenue from operations and still fails the filters applied by the TPO. 3.9 He further submitted that the Learned AO/ DRP/ TPO had erred in law and on facts by not considering the following judicial precedents rendered by the coordinate bench of ITAT wherein M/s. Jeevan Scientific Solutions was directed to be excluded due to service income being less than 75 percent of total revenue. Micro Focus Software India Private Limited in ITTPA 280/BANG/2016 Aspect Technology Centre (Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables while determining the ALP of international transactions. The ld. A.R. submitted that on earlier occasion, in this assessment year 2012-13, assessee came in appeal before this Tribunal in IT(TP)A No.530/Bang/2017, the Tribunal vide order dated 7.8.2019 inter-alia decided the issue as follows: 17. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are trained to understand language spoken by doctors, outside India to whom medical reports of patience are sent for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accordingly, we set aside this comparable back to Ld. TPO 7.1 The AO/TPO while giving effect to the above order of the Tribunal has observed as under: M/s. BNR Udyog Ltd.: The Hon'ble ITAT had set aside the comparable to TPO for fresh adjudication \ the comparability of this company. Further, Vide submission dated 30.12.2021, the taxpayer has raised objection that the company is failing RPT filter and since the primary activity of this company is into medical transcription services, the company is not functionally similar to the taxpayer. TPO's remarks on Functionally different is as under: As per 3CEB report, it can be seen that the taxpayer is also engaged in medical transcription services which is similar functions to the comparable. Hence, the comparable's functionality cannot be objected with the taxpayer's functionality. Further, as per Rule 10TA (e) of the Income Tax Rules, 1962, the definition of Information technology enabled services also consists business process outsourcing services provided mainly with the assistance or use of information technology, namely Creation and maintenance of medical transcription exclud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP/ TPO erred in law and on facts by not considering the decision of this Tribunal in the case of M/s. Honeywell Technologies Solutions Limited (ITA 2889/BANG/2022), wherein the ITAT had directed exclusion of this company as comparable by holding that the related party turnover ratio worked out to 49.60 percent for the very same AY 2012-13. 8.2 He submitted that the Learned AO/ DRP/ TPO had erred in law and on facts by incorrectly concluding that the entire revenue of medical transcription services segment is from Non-Associated Enterprises ( Non AEs ) merely based on amounts reported under earnings in foreign currency. 8.3 He further submitted that the Learned AO/ DRP/ TPO ought to have appreciated that M/s. BNR Udyog Limited had disclosed a sum of INR 1,70,04,261/- as purchases, sales and services from related parties without providing the segment wise breakup of such transactions. 8.4 He submitted that the Learned AO/ DRP/ TPO erred in law in acting based on conjecture and surmises without bringing into record any material to state M/s. BNR Udyog Limited had not provided any medical transcription services to related parties. 8.5 The ld. A.R. further submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of pre-press BPO segment as directed by the ITAT. 12.3 He submitted that the Learned AO/ DRP/ TPO had erred in blatantly disregarding the directions of this Tribunal wherein it was held that this comparable company ought to be excluded if the aforesaid adjustments cannot be reasonably or accurately made. 12.4 He further submitted that the Learned AO/ DRP/ TPO had erred in law and on facts by not considering the following judicial precedents rendered by the coordinate bench of ITAT wherein it was specifically held that the services rendered by M/s. Universal Print Systems Limited under the pre-pressed services segment were functionally not comparable to ITES services in following cases: M/s. Zyme Solutions (P) Limited [2019] (101 taxmann.com 292) M/s. Kronos Systems India Private Limited (IT(TP)A No.2301/Bang/2016) M/s. Eaton Technologies (P) Limited [2020] (115 taxmann.com 341) 12.5 The ld. A.R. further submitted that the Learned AO/ DRP/ TPO erred in including M/s. Universal Print Systems Limited even though the company fails TPO's own filter of service income being greater than 75 percent of total operating revenue 12.6 He submitted that the Learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from nonfinancial service income. The Assessee pointed out that the percentage of income from ITES was only 21.6% of the total revenue from operations of this company as per its annual report. The .Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image maskin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as engaged in providing ITES. At this stage the TPO ought to have dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter is applied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 50. The requirements of Rule 10B(1)(2) (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: 10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely: (a) to (d). ****** (e) transactional-margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged or paid in, or the profit arising from such transactions in the open market; or (ii) reasonably accurate adjustments can be made to eliminate the material effects of such differences. 5.2. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffset Printing, and Pre-press BPO and for our study. only the pre-press BPO has been considered. Therefore, filters are to be applied only on the figures of this segment. The employee cost of pre-press BPO is more than 25% of the revenue from pre-press BPO. Therefore, the employee cost filter is satisfied in the case of this company. Further, on the service revenue filter, the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the Pre-press BPO segment's entire income is from services. Therefore, the service income filter is satisfied in the case of this company. On the issue of export filter being more than 75%, the filter are to be applied only on the figures of this segment. The total revenue from Pre-press BPO segment is from exports only. Therefore. the export filter is satisfied in the case of this company. On the issue adopting segmental data for applying filter. the Hon'ble ITAT in the case of Zyme Solutions Pvt. Ltd.. vs ACTT reported in (2019) 101 taxman.com 292. itself upheld that if clear segmental information is available the filters can be applied at the segmental level in TN ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e seen that the both the segments supplement the functions performed in the Pre-press BPO segment. Hence, the claim of the taxpayer is rejected and this company is considered as comparable to the taxpayer. 14.2 Against this the assessee is in appeal before us. In our opinion, Tribunal on earlier occasion given the finding that if the adjustment cannot be made reasonable or accurately, this company M/s. Universal Print Systems Ltd. to be excluded from the list of comparable companies. For this purpose, the TPO should exercise power u/s 133(6) of the Act. Actually the AO issued a notice u/s 133(6) of the Act to M/s. Universal Print Systems Ltd. and no reply has been received from them. Having no option, he considered this company as comparable to the assessee company and included in the lists of comparables. In our opinion, the required information u/s 133(6) of the Act is not made available to the TPO, in such circumstances, T.P. adjustment on this count cannot be made reasonable or accurately made in this regard. Accordingly, this company is to be excluded from the list of comparable companies as reliance placed by this Tribunal while deciding this issue in assessee s own cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
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