9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2023 (12) TMI 655 - HC - Income TaxTP Adjustment - exclusion of certain comparables - whether three comparables namely Infosys BPO Ltd., Actopetal Technologies Ltd. and e-Clerx Services Ltd. were wrongly rejected as comparables by the Tribunal by way of the impugned order? - HELD THAT - Admittedly assessee is engaged in providing ITeS to its AE through the use of information technology infrastructure including online software, live information services and research on international database. It is also not disputed that in the present case, the most appropriate method for determination of Arms Length Price would be TNMM. Infosys BPO Ltd - Admittedly, in the respondent/assessee s own case for subsequent assessment year AY 2010-11, the said entity Infosys BPO Ltd. was rejected as comparable in view of the aforesaid dissimilarities. These and various other aspects related to the Infosys BPO Ltd. were considered by a co-ordinate bench of this court in the case of PCIT vs M/s Sanvih Info Group Pvt. Ltd., 2019 (5) TMI 1211 - DELHI HIGH COURT in which after examining the judgment in the case of Chryscapital 2015 (4) TMI 949 - DELHI HIGH COURT it was observed that none of the remaining comparables involved in the said case was a giant corporation like Infosys. Same is in the present case as well, in the sense that none of the said nine comparables is of the size of Infosys. Besides, Infosys BPO Ltd. is even functionally dissimilar to the respondent/assessee in the sense that it is largely engaged in the area of software development, assuming all risks leading to higher profits, which is not in the case of respondent/assessee. That being so, we find no error in decision of the Tribunal in rejecting Infosys BPO Ltd. as a comparable. Acropetal Technologies Ltd. TPO took segmental information for income from engineering design services and treated it as IT enabled services. The Acropetal has high on-site development expenses whereas the respondent/assessee is engaged only in offshore activities, therefore, the two are not comparable on functional level. The TPO failed to analyse as to how the engineering design services of Acropetal can be compared with low end IT enabled services of the respondent/assessee. Even the segmental detail of Acropetal has not been discussed by the TPO. Therefore, we find no error in the decision of the Tribunal in rejecting Acropetal Technologies Ltd. as a comparable. E-Clerx Services Ltd. company, as per record, is a leading Knowledge Process Outsourcing (KPO) company, founded in the year 2000, providing data analytics and data process solutions to some of the largest brands in the world. Over the years, e-Clerx consistently achieved profitable growth and by the year 2008-09, it reached employee strength of about 2000. The eClerx has made an inherent niche high-end, KPO data analytics business, scalable - by combining people, process re-engineering and automation in a potent mix to build proprietary, platform based services. The e-Clerx focuses on automation and process re-engineering in order to eliminate wasteful steps, and to automate repetitive ones, so as to minimize the need for human intervention and present their clients costs savings, which exceed those from simple wage arbitrage, which in turn reduces the need for costly, high skilled resources and gives it ability to scale solutions quickly, both for existing clients and also for new ones. In contrast, as detailed above, the respondent/assessee has employed fresh young graduates, engaged in simply punching in the data. Another significant aspect is that e-Clerx carries out its substantial business on outsourcing model, which makes it different from the respondent/assessee. The high end KPO services provider cannot be compared with the ITeS, which fall under the category of BPO services provider, as explained by a coordinate bench of this court in the case of Rampgreen Solutions 2015 (8) TMI 931 - DELHI HIGH COURT Therefore, as regards rejection of e-Clerx as comparable in the present case, we find no error in the decision of the Tribunal. Addition u/s 40A(ia) - As no arguments were advanced. Perhaps that was for the reason that regarding this issue the CIT(A) had given direction to the Assessing Officer to verify whether the copies of deduction of tax at lower rate were filed before the Assessing Officer before passing of the assessment order and if that be so, then no disallowance could be made. Before the Tribunal the counsel for revenue stated that the Assessing Officer would give effect to the order of the CIT(A). Accordingly, this ground was treated as infructuous by the Tribunal. This question thus does not arise for our consideration.
Issues Involved:
A. Deletion of addition made by the AO on account of ALP adjustment of international transaction from associated enterprises. B. Stringent standards of comparability laid down by ITAT. C. Exclusion of comparables by ITAT without satisfying pre-conditions mentioned in Rule 10(B)(2) of the Income Tax Rules. D. Exclusion of M/s Infosys BPO Ltd as comparable. E. Exclusion of M/s Infosys BPO Ltd, Acropetal Technologies Ltd., and e-Clerx Ltd as comparables. F. Deletion of disallowance under Section 40A(ia) due to violation of Section 197(1) of the Act. G. Deletion of addition under Section 40A(2) despite failure to justify the service rendered by the director. Summary: Issue A: Deletion of ALP Adjustment The Tribunal deleted the addition made by the AO on account of ALP adjustment of international transaction from associated enterprises, which was based on the TPO's benchmarking using TNMM with a margin of 22.72%. Issue B: Stringent Standards of Comparability The Tribunal was justified in laying down stringent standards of comparability, recognizing that exact comparables without any difference are not always possible, and emphasizing the need for flexibility in comparability analysis for determination of ALP. Issue C: Exclusion of Comparables The Tribunal excluded certain comparables without satisfying the pre-conditions mentioned in Rule 10(B)(2) of the Income Tax Rules, focusing on the functional dissimilarities between the entities. Issue D & E: Exclusion of Infosys BPO Ltd., Acropetal Technologies Ltd., and e-Clerx Ltd. The Tribunal excluded Infosys BPO Ltd. due to its significantly larger size, brand value, and functional dissimilarity, as it is largely engaged in software development and assumes all risks leading to higher profits. Acropetal Technologies Ltd. was excluded due to its high on-site development expenses and lack of functional similarity with the respondent/assessee, who is engaged in offshore activities. e-Clerx Ltd. was excluded as it is a high-end KPO service provider, fundamentally different from the respondent/assessee's BPO services. Issue F: Deletion of Disallowance under Section 40A(ia) No arguments were advanced regarding the deletion of disallowance under Section 40A(ia), and the Tribunal treated this ground as infructuous, as the AO was directed to verify the tax deduction details. Issue G: Deletion of Addition under Section 40A(2) The proposed question regarding Section 40A(2) does not arise, as per the judgment in S.A. Builders Ltd. vs Commissioner of Income Tax (Appeals) Chandigarh & Anr. Conclusion: The Tribunal's findings on the exclusion of the three comparables were upheld, and no substantial question of law was found for consideration. Therefore, the appeal was dismissed.
|
