9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (12) TMI 903 - AT - Income TaxTransfer pricing adjustment - whether the filter of export sales to total sales of 25% applied by ld. TPO and accepted by ld. DRP is justified or not? - Held that - Rule 10B(2)(d) is relevant only for CUP method cannot be accepted. All these factors have bearing on the net margin to be determined in all methods including TNM method. We are in agreement with the submission of ld. Sr. DR, reproduced earlier, that those geographical markets in which parties entering into transactions operate is an important factor which influence the price of the transaction and that has to be factored into for identification of uncontrolled transactions. Various case laws relied upon by ld. DR also fortify the view taken by us. For the sake of brevity, we are not referring to those decisions which have been elaborately considered in the submi1ssions of ld. DR, reproduced earlier. We, accordingly, reject this contention of ld. counsel for the assessee. All the comparables had been excluded as they did not pass through export filter applied by ld. TPO. As we have already upheld the export filter applied by ld. TPO in earlier part of our order, we reject the assessee s contention. There is no denying of the fact that Infosys BPO operates on a large scale and caters to wide variety of customers operating in different industries. Ld. counsel has filed before us extracts from the annual reports and white paper issued by Infosys in regard to Process Progression Model ( PPM ), a holistic model to transform business processes .In view of above discussion, we direct ld. TPO to exclude Infosys BPO. eClerx Services Limited to be excluded from the list of comparables as this company is functionally different, which is evident from the business profile of eClerix, reproduced earlier from Annual Report. TPO had denied the risk adjustment claimed by assessee on the ground that assessee failed to show that the comparables had actually undertaken suck risk and failed to demonstrate how the same material affected from margins. He pointed out that unless it was shown that how the risk adjustment to fetch the result of each comparable and how the same would improve the comparability and unless adequate reasons are given for such adjustment, no adjustment can be allowed to the tax payer. Before ld. DRP also the assessee failed to furnish any data for quantification of risk. Unless the difference can be ascertained accurately and their import on the margin can be assessed with reasonable accuracy, the adjustment cannot be allowed. Under such circumstances, the matter also cannot be restored back to the file of ld. TPO. Denial of working capital adjustment - Held that - The matter needs to be restored back to the ld. TPO to verify the assessee s contention regarding all the invoices outstanding being for less than six months and, if, the same is found to be correct, then no addition is called for in view of the ITAT decision in the case of M/s Logix Micro Systems Ltd. (2010 (10) TMI 902 - ITAT BANGALORE). One of the plea of ld. counsel for the assessee was that the entire funds are received from parent company. However, this plea has been taken for the first time and was not taken before lower revenue authorities. Therefore, this aspect also needs to be considered by ld. TPO while deciding this issue de novo.
Issues Involved:
1. Validity of the assessment order. 2. Arm's Length Principle (ALP) for international transactions. 3. Use of multiple years' data. 4. Doctrine of impossibility of performance. 5. Selection and rejection of comparable companies. 6. Inclusion of Infosys BPO Limited as a comparable. 7. Inclusion of eClerx Services Private Limited as a comparable. 8. Risk adjustment under Rule 10B(1)(e). 9. Treatment of outstanding receivables as unsecured loans. 10. Initiation of penalty proceedings under section 271(1)(c). 11. Levy of interest under sections 234B and 234D. 12. Computational errors in tax payable and interest calculation. Detailed Analysis: 1. Validity of the Assessment Order: The assessment order passed by the Income Tax Officer was challenged as being bad in law. However, the tribunal did not specifically address this issue in detail, indicating that the primary focus was on the substantive grounds of appeal. 2. Arm's Length Principle (ALP) for International Transactions: The tribunal upheld the adjustments made by the TPO and DRP regarding the ALP of the international transactions. The TPO had determined the ALP of services rendered at Rs. 22,24,02,990/- and directed an adjustment of Rs. 4,20,27,490/- since the price received was Rs. 18,03,75,500/-. The tribunal supported the application of the export filter by the TPO, rejecting the contention that the filter was not legally prescribed. 3. Use of Multiple Years' Data: The tribunal dismissed the grounds related to the use of multiple years' data as not pressed by the assessee. Therefore, the TPO's reliance on single-year data for FY 2009-10 was accepted. 4. Doctrine of Impossibility of Performance: The tribunal dismissed the grounds related to the doctrine of impossibility of performance as not pressed by the assessee. 5. Selection and Rejection of Comparable Companies: The tribunal upheld the TPO's filters and the exclusion of several comparables selected by the assessee, such as AOK In-House BPO Services Limited, Aditya Birla Minacs Worldwide Ltd, Cameo Corporate Services Ltd, Delta Services (I) Pvt Ltd, KNM Services Pvt Ltd, Sparsh BPO Services Ltd, and Timex Group India Ltd. However, the tribunal restored the issue of Aditya Birla Minacs Worldwide Ltd to the TPO for re-examination of the computation of export earnings to total sales. 6. Inclusion of Infosys BPO Limited as a Comparable: The tribunal directed the exclusion of Infosys BPO Limited from the list of comparables. It was noted that Infosys BPO operates on a large scale, has significant intangibles, and underwent an extraordinary event of merger during the relevant financial year, making it not comparable to the assessee. 7. Inclusion of eClerx Services Private Limited as a Comparable: The tribunal directed the exclusion of eClerx Services Private Limited from the list of comparables, citing the decision of the Hon'ble Delhi High Court in the case of Rampgreen Solution, which emphasized functional dissimilarity between KPO and BPO services. 8. Risk Adjustment under Rule 10B(1)(e): The tribunal dismissed the ground related to risk adjustment, noting that the assessee failed to provide data for quantification of risk and demonstrate how the risks materially affected the margins. 9. Treatment of Outstanding Receivables as Unsecured Loans: The tribunal restored the issue to the TPO to verify the assessee's contention that all invoices outstanding were for less than six months. If found correct, no addition would be warranted, following the ITAT decision in the case of M/s Logix Micro Systems Ltd. 10. Initiation of Penalty Proceedings under Section 271(1)(c): The tribunal found the ground related to the initiation of penalty proceedings to be premature. 11. Levy of Interest under Sections 234B and 234D: The tribunal noted that the charging of interest under sections 234B and 234D is consequential and directed the AO to recalculate the interest while giving effect to the appellate order. 12. Computational Errors in Tax Payable and Interest Calculation: The tribunal did not specifically address this issue, implying that any computational errors would be rectified during the recalculation of interest and tax payable by the AO. Conclusion: The tribunal partly allowed the appeal, directing the exclusion of Infosys BPO Limited and eClerx Services Private Limited from the list of comparables and restoring certain issues to the TPO for re-examination. Other grounds raised by the assessee were dismissed or found to be premature.
|
