2013 (6) TMI 405 - AT - Income Tax

Transfer pricing adjustment - selection of comparables - Accentia Technologies Limited - contention of the assessee that in case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result - Held that - As can be seen from the order of Capital IQ Information Systems India Pvt. Ltd 2014 (3) TMI 626 - ITAT HYDERABAD the aforesaid company was excluded since ex-ordinary events like merger and demerger had taken during the relevant financial year which must have impacted the financial results of the company. That besides the high volume of on-site operation of Accentia Technologies Limited also makes it functionally dissimilar to the assessee. These facts are not all considered either by the TPO or by the DRP. Therefore remit the matter to the file of the AO who shall verify the fact whether actually merger has taken place during the year and if it found so, then the aforesaid company has to be excluded from the list of comparables. Accurate Data Convertors Private Ltd. - Held that - Since the TPO has not given any opportunity to the assessee to raise his objections with regard to the aforesaid company, remit this issue to the file of the AO who shall decide the acceptability or otherwise of the company as comparable after considering the assessee s objections. Vishal Information Technologies Ltd. - Held that - As can be seen from the order of Capital IQ Information Systems India Pvt. Ltd 2014 (3) TMI 626 - ITAT HYDERABAD the aforesaid company unlike the assessee has outsourced considerable portion of its business to third party vendor. Hence, it cannot be considered as a comparable. Asit C Mehta Financial Services Ltd. - Held that - The company has a employee cost of 24.78% compared to assessee s 44%. That besides also the DRP in assessee s own case for asst. year 2008-09 has excluded this company which has not been controverted by the DR. Exclusion directed. Bodhtree Consulting Limited - Held that - From the annual report of the aforesaid company it is seen that the said company earns its revenue from software development. Therefore it is functionally different from the assessee. This fact has not properly considered by either by the TPO or DRP. Therefore remit the matter back to the file of the AO to reconsider. Eclerx Services Limited - Held that - As can be seen from the order of Capital IQ Information Systems India Pvt. Ltd 2014 (3) TMI 626 - ITAT HYDERABAD aforesaid company cannot be treated as not only the said company is functionally different being engaged in providing KPO services but it has also shown extraordinary high profits. Exclusion directed. Informed Technologies India Limited and Iservices India Private Ltd - Held that - As can be seen from materials on record, the assessee has not raised any objection either before the TPO or before the DRP in respect of aforesaid companies. The assessee has also not made out a very convincing case before us to justify excluding the aforesaid two companies. Hence, we are of the view that these two companies have been correctly selected as comparables. Mold-Tek Technologies Limited - Held that - As can be seen from the order of Capital IQ Information Systems India Pvt. Ltd 2014 (3) TMI 626 - ITAT HYDERABAD the said company is to be excluded as it has shown extraoridinarily high profit & that besides also the DRP in assessee s own case for asst. year 2008-09 has excluded this company which has not been controverted by the DR. HCL Comnet Systems & Services Limited, Infosys BPO Limited and Wipro Limited - Held that - As can be seen from the order of Capital IQ Information Systems India Pvt. Ltd 2014 (3) TMI 626 - ITAT HYDERABAD the aforesaid three companies cannot be treated as comparable, considering their substantially high turnover as compared to that of the assessee. Also agree that the turnover filter of ₹ 1 crore to ₹ 200 crore as applied in Genisys Integrating Systems (India) (P.) Ltd. 2011 (8) TMI 952 - ITAT BANGALORE should also apply to the facts of the present case, considering the assessee s turnover of mere ₹ 60 crores. Thus companies having turnover of ₹ 1 crore to ₹ 200 crore alone can be considered as comparable, in the case of the assessee. Exclusion directed. Reduction of communication charges from the export turnover without reducing it from the total turnover while computing deduction u/s 10A - Held that - his issue is squarely covered in favour of the assessee by the judgment of CIT vs. Gem Plus Jewellery Ltd 2010 (6) TMI 65 - BOMBAY HIGH COURT & ITO vs. Sak Soft Limited 2009 (3) TMI 243 - ITAT MADRAS-D thus direct AO to reduce communication charges both from the export turnover as well as the total turnover for computing exemption u/s 10A. This ground of the assessee is allowed.

Summary

Issues Involved:
1. Transfer Pricing Issues
2. Reduction of Communication Charges from Export Turnover for Section 10A Deduction
3. Levy of Interest under Sections 234B and 234C
4. Initiation of Penalty Proceedings under Section 271(1)(c)

Detailed Analysis:

1. Transfer Pricing Issues:

Accentia Technologies Limited:
The assessee argued that Accentia Technologies Limited is functionally different due to high overseas business expenses and low employee costs, indicating it outsources work. Additionally, multiple acquisitions during the year impacted its profitability. The Tribunal found that mergers and acquisitions during the year resulted in higher profits and remitted the matter to the Assessing Officer for verification.

Accurate Data Convertors Private Ltd.:
The assessee contended that this company was not initially selected as comparable and no opportunity was given to examine its comparability. The Tribunal noted that the TPO did not provide the assessee with an opportunity to object and remitted the issue back to the Assessing Officer.

Vishal Information Technologies Ltd.:
The assessee objected to this company due to its low employee costs and outsourcing of work. The Tribunal agreed, noting that the DRP had previously rejected this company as comparable, and directed its exclusion.

Asit C Mehta Financial Services Ltd.:
The assessee highlighted the low employee cost of this company. The Tribunal noted that the DRP had excluded this company in a previous year and directed its exclusion.

Bodhtree Consulting Limited:
The assessee argued that this company is into software services and functionally different. The Tribunal remitted the matter back to the Assessing Officer for proper consideration of the objections.

Eclerx Services Limited:
The assessee contended that this company is engaged in KPO services and has extraordinarily high profits. The Tribunal agreed, following a previous decision, and directed its exclusion.

Informed Technologies India Limited and Iservices India Private Ltd.:
The assessee argued that these companies had exceptional years of operation. The Tribunal found that the assessee did not raise objections earlier and upheld their inclusion as comparables.

Mold-Tek Technologies Limited:
The assessee objected due to the company's supernormal profits and functional differences. The Tribunal, following a previous decision, directed its exclusion.

HCL Comnet Systems & Services Limited, Infosys BPO Limited and Wipro Limited:
The assessee argued that these companies have significantly higher turnovers and functional differences. The Tribunal agreed, noting the substantial turnover differences and directed their exclusion.

2. Reduction of Communication Charges from Export Turnover for Section 10A Deduction:
The Tribunal noted that the issue is covered in favor of the assessee by the judgment of the Bombay High Court in CIT vs. Gem Plus Jewellery Ltd and the ITAT Chennai Special Bench in ITO vs. Sak Soft Limited. The Tribunal directed the Assessing Officer to reduce communication charges from both the export turnover and the total turnover for computing the deduction under Section 10A.

3. Levy of Interest under Sections 234B and 234C:
The Tribunal dismissed these grounds as they are consequential to the final determination of income.

4. Initiation of Penalty Proceedings under Section 271(1)(c):
The Tribunal dismissed this ground as it became infructuous due to the final determination of income.

Conclusion:
The appeal filed by the assessee is partly allowed, with specific directions given for the determination of the ALP and computation of the deduction under Section 10A. The issues regarding interest and penalty proceedings were dismissed as consequential and infructuous, respectively.