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2021 (8) TMI 1272 - AT - Income TaxTP Adjustment - comparable selection - HELD THAT - Asit C Mehta be excluded from the list of comparables as this company is, the company is having more than one segment. Whereas, separate segmental data is not available in the public domain - the employee cost of the company works out to 22.78% of the total cost as compared to assessee s employee cost of 48.27%. Further, the turnover of the assessee is more than eighty times of the turnover of the company. See DBOI GLOBAL SERVICES PVT. LTD. 2016 (8) TMI 1292 - ITAT MUMBAI , ZAVATA INDIA PRIVATE LIMITED 2013 (6) TMI 405 - ITAT HYDERABAD and STREAM INTERNATIONAL SERVICES PRIVATE LIMITED 2014 (10) TMI 393 - ITAT MUMBAI Infosys BPO Ltd is to be excluded for the reason that it is engaged in rendering software development and related technical activities. We have also found from record that the facts based on which the company was rejected in assessment year 2006-07 are no different in the impugned assessment year. In view of the aforesaid, we exclude this company from the list of comparables. Vishal Information Technologies Ltd be excluded for the reason that instead of performing the work itself, it outsources the work to third party vendors. Wipro Limited (Seg) be excluded on the ground that it has exceptionally high turnover compared to assessee s turnover. eClerx Services Ltd incurred a major part of its expenses towards outsourcing of services, whereas, the assessee is a routine BPO service provider without outsourcing any of its activities. Thus, in our view, this company cannot be comparable to the assessee. Moldtek Technologies Ltd be excluded as this company is providing structural engineering and design services of construction of building. Further, the company has undertaken expansion vigorously. Thus, there is extraordinary growth which could have resulted in abnormal profit margin of 113.49%. Further, the employee cost of the company as a percentage of the total cost works out to meager 8.41% as compared to assessee s employee cost of 48.27%. Thus, these factors, in our view, do not make the company comparable to the assessee. Informed Technologies India Ltd company serves the needs of the financial content sector in the USA. It collects and analyses data on financial fundamentals, corporate governance, structures/executes compensation and capital market. The company caters to the niche market segment of financial content and its targeted clientele include well known and respected American Corporate. Thus, as it appears, the company is functionally dissimilar to the assessee. Caliber Point Business Solutions Ltd and HCL Comnet Systems Pvt Ltd (Seg) be excluded on the ground that their related party transaction (RPT) is substantially high compared to assessee - we find, HCL Comnet Systems India Ltd (Seg) has been rejected by different benches of the Tribunal in case of other assesses for the reason of having a different financial year ending, different business model and super normal profit. Thus we exclude these two companies from the list of comparables. I Services India Pvt Ltd company is engaged in providing remote data entry services to its clients in USA. Further, it has reported a profit margin of 50.27% for the year under consideration, which is exceptionally high in terms of industry norms. Due to the super normal profit earned by the company for the year under consideration, the Tribunal excluded it from being considered as a comparable in case of Pentair Water India P Ltd 2016 (5) TMI 137 - BOMBAY HIGH COURT , which is for the very same assessment year - thus we exclude this company from the list of comparables. Deduction on account of Education Cess paid by the appellants - HELD THAT - We find that the issue raised in the additional ground stands decided in favour of the assessee by the decision of Hon ble jurisdictional High Court in case of Sesa Goa Ltd . 2020 (3) TMI 347 - BOMBAY HIGH COURT . Respectfully following the aforesaid decision of the Hon ble jurisdictional High Court, we direct the assessing officer to verify the facts and allow deduction of education cess paid by the assessee. Benefit of -5% relief to the assessee - HELD THAT - As per settled legal principle, the benefit of ( )/(-) 5% under section 92C(2) cannot be allowed as standard deduction. With the aforesaid observations, these grounds are dismissed.
Issues Involved:
1. Transfer Pricing Adjustment - Selection/Rejection of Comparables 2. Deduction on Account of Education Cess 3. Applicability of the Amended Proviso to Section 92(2) for AY 2007-08 Issue-wise Detailed Analysis: 1. Transfer Pricing Adjustment - Selection/Rejection of Comparables The primary issue in the assessee's appeal was the addition made on account of transfer pricing adjustment, specifically concerning the selection/rejection of comparables. The assessee, a wholly-owned subsidiary of Deutsche Asia Pacific Holdings Pte Ltd, Singapore, engaged in providing data processing and back office support services, had reported revenue of ?112,84,66,814/- from international transactions with its associated enterprises (AE). The assessee used the Transactional Net Margin Method (TNMM) and shortlisted twelve comparables with an arithmetic mean of 14.91%. Since the margin shown by the assessee at 11.20% was within the +/- 5% range, the transaction was considered at arm's length. However, the Transfer Pricing Officer (TPO) rejected seven of the twelve comparables and selected twenty-seven new comparables with an arithmetic mean of 30.67%, leading to an adjustment of ?19,98,46,156/-. The Tribunal reviewed the comparables and excluded several companies based on various grounds: - Asit C Mehta: Excluded due to low employee cost and non-availability of segmental data. - Infosys BPO Ltd: Excluded due to functional dissimilarity and high turnover. - Apex Knowledge Solutions Pvt Ltd: Excluded for engaging in software development and related technical activities. - Vishal Information Technologies Ltd: Excluded due to outsourcing activities and low employee cost. - Wipro Limited (Seg): Excluded due to exceptionally high turnover and brand value. - eClerx Services Ltd: Excluded for being a KPO service provider with significant outsourcing. - Moldtek Technologies Ltd: Excluded for functional dissimilarity, abnormal profit margin, and low employee cost. - Informed Technologies India Ltd: Excluded due to functional dissimilarity and low employee cost. - Caliber Point Business Solutions Ltd & HCL Comnet Systems Pvt Ltd (Seg): Excluded due to high related party transactions (RPT). - I Services India Pvt Ltd: Excluded for functional dissimilarity, super normal profit, and non-availability of contemporaneous data. With the exclusion of these eleven companies, the assessee's margin was within the acceptable range of the arithmetic mean of the remaining comparables. Thus, the Tribunal granted partial relief to the assessee. 2. Deduction on Account of Education Cess The assessee raised an additional ground seeking deduction on account of Education Cess paid for the assessment year 2007-08. The Tribunal admitted the additional ground, stating it was a purely legal issue that could be decided based on the facts available on record. The Tribunal directed the assessing officer to verify the facts and allow the deduction of education cess, following the decision of the Hon'ble jurisdictional High Court in the case of Sesa Goa Ltd vs ACIT. 3. Applicability of the Amended Proviso to Section 92(2) for AY 2007-08 The revenue's appeal raised grounds challenging the benefit of +/- 5% relief granted to the assessee and the applicability of the amended proviso to Section 92(2) for AY 2007-08. The Tribunal noted that in light of its decision on the assessee's appeal, these grounds had become infructuous. The Tribunal reiterated that the benefit of +/- 5% under section 92C(2) could not be allowed as a standard deduction and dismissed the revenue's appeal. Conclusion: The Tribunal partly allowed the assessee's appeal by excluding certain comparables and directed the assessing officer to allow the deduction of education cess. The revenue's appeal was dismissed. The order was pronounced on 11/08/2021.
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