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TMI Blog2014 (1) TMI 954X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, 1962. There is no difference, in view of DRP, between Personal Employer Organisation (PEO) and recruitment agency functionally - The revenue model may be different but that is an accounting issue, functionally there is no difference - The reason for recruitment from India is to avail, the services at a particular price - The detailed objections raised by counsel for the assessee and DRP has not considered the objections of the assessee and merely held that Info Edge (India) Ltd. and Overseas Manpower Corporation Ltd. are functionally same as the assessee - in Assessment Year 2007-08 the matter has already been restored back to the file of the DRP - keeping in the view the entire conspectus of the case and in the light of the submissions made by counsel for the assessee and the findings recorded by the DRP – the matter is required to be remitted back to the DRP/AO for re-adjudication – Decided in favour of Assessee. - ITA No. 6184/Del/2012 - - - Dated:- 19-7-2013 - S. V MEHROTRA AND SMT DIVA SINGH, JJ. For the Appellant : Rahul Kr. Mitra. For the Respondent : Peeyush Jain. ORDER:- PER : S.V. Mehrotra The appeal has been filed by the Assessee against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the TPO's action vide its order dated 31-08-2011. The Assessing Officer, accordingly, passed the order on 29-10-2012 u/s 143(3) read with section 144C of the Income-tax Act, 1961. Being aggrieved with the Assessment Order, the assessee is in appeal before us and has taken following grounds of appeal: 1. That on the facts and in the circumstances of the case and in law, the order passed by the Ld. Assessing Officer is bad in law and void ab-initio. 2. The reference made by the Assessing Officer suffered from jurisdictional error as the Ld. Assessing Officer has not recorded any reasons in the assessment order based on which he reached the conclusion that it was necessary or expedient' to refer the matter to the Ld. TPO for computation of the Arm's Length Price ('ALP'), as is required under section 92CA(1) of the Act. 3. The Ld. DRP and the Ld. Assessing Officer (following the directions of the Ld. DRP), erred on facts and in law in enhancing the income of the Appellant by Rs. 5,12,05,343 holding that the International transactions pertaining to provisions of secondment related services do not satisfy the arm's length principle envisaged under the Act and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... force Solutions Private Limited ("Adecco") and Ma Foi Management Consultants Limited "Ma Foi") submitted by the Assessee as part of its fresh search and in response to the show-cause notice issued by the Ld. TPO on an arbitrary and unreasonable basis; 3.7.3 not complying with the directions of Ld. DRP in case of Adecco Flexione Workforce Solutions Pvt. Ltd. ('Adecco'), wherein the Ld. DRP had agreed that the said company is functionally comparable to the Appellant and directed the Ld. TPO to verify whether the related party transactions of Adecco fall below 25% of the company's total sales and accordingly, recompute the ALP of the International transaction entered into by the Appellant by including Adecco in the final comparables set if the related party transactions of the company falls within the 25% threshold; 3.7.4 by using three companies as comparables for determination of arm's length margin out of which two companies provide diversified services and are not comparable to the Assessee; 3.7.5 by including high-profit making companies in the final comparables' set for benchmarking a low risk captive unit such as the Assessee (disregarding judicial pronounc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osing to compute interest under section 234B and 234D of the Act mechanically and without recording any satisfactory reasons for the same. 6. The Ld. Assessing Officer has grossly erred on facts and in law by disregarding judicial pronouncements in India in undertaking the TP adjustment.' 6. At the very outset ld counsel Shri Rahul Kr. Mitra submitted that Tribunal in assessment year 2007-08 vide its order dated 29-03-2012 in ITA No. 4639/Del/2011 has restored the matter to DRP for readjudication and passing a speaking order after considering the assessee's contention. Ld Counsel further submitted that out of three comparables selected Ld. TPO, two comparables, viz. Overseas Manpower Corporation (recruitment segment) and Info Edge (India) Ltd., are functionally different inasmuch as they are recruitment agencies and not a Professional Employer Organization ("PEO") like assessee. Ld counsel submitted that the key difference between PEO and recruitment agencies are as under: S. No. Basis PEO Model Recruitment agency model 1. Concept PEO enable prospective employers to cost- effectively outsource the management of human resou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e is 68% as compared to Info Edge (India) Limited (46%) and Overseas Manpower Corporation Limited (Recruitment Segment) (24%). He, thus, submitted that assessee's employee cost is much more because apart from administrative expenses the employee's salary also becomes part of total cost. In sum and substances ld counsel submitted that functional profile of a recruitment agency and a professional employee organisation is entirely different and cannot be compared. Ld counsel has further submitted in its synopsis filed at the time of hearing as under: "Comparability Analysis The primary contention of the Appellant during this year is against the inclusion of Info Edge (India) Limited ('Info Edge') and Overseas Manpower Corpn Ltd. (Recruitment Segment) ('Overseas') in the final comparables set. In addition to the difference in model of the Appellant and Info Edge, the Appellant enumerates the following additional ground based on which it contests the inclusion of Info Edge by the Ld. TRO: Engaged in diversified services such as rendering recruitment, real estate, and matrimonial services. Has a ratio of advertisement, marketing and distribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Segment) 10.16% Accepted Mean 4.82% The Ld. TPO has wrongfully rejected the Appellant comparable Adecco Flexione Workforce Solutions Private Limited ("Adecco") stating the related party details the same are not available. Further, the Ld. TPO has not adhered by the directions of the Ld. DRP wherein it held that: Quote 1. Adecco Flexione Workforce Solutions Pvt. Ltd. In view of the DRP it is functionally comparable and the TPO is directed to verify if RPT is below 25% and if yes to include it as a comparable and recomputed the ALP accordingly. Unquote However, in this regard, the Appellant submits the following related party snapshot form the annual report of the comparable company (The same was submitted by the Appellant before the Ld. TPO vide its submission dated September 19, 2011 (please refer pg 448 of the paperbook II) and before the Ld. DRP in Form 35A submitted vide dated January 6, 2012 (please refer pg 68 of the paperbook I)) Adecco Flexione Workforce Solutions Limited Schedules of the accounts- Year ended March 31, 2008 16. Notes of Accounts (B) Related party transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rposes as of March 31. The Companies are free to adopt different statutory year-ends, which may or may not coincide with the March year end. The fact that a company has a statutory year-end on December 31, 2007 as against the financial year end for tax purposes of March 31, 2008 does not by itself render that company incomparable, for the reason that the financial information is very much contemporaneous and falls within the period permitted by the Income-tax Rules, 1962. However, the Appellant submits below two approaches based on which Ma Foi's financials can be calculated for the period April, 2007 March, 2008. 1. Average of December, 2007 and December, 2008 data Particulars Dec-07 Dec-08 Average Sales 367.31 498.76 433.04 Total Cost 352.25 490.82 421.54 Operating Profit 15.06 7.94 11.50 OP/TC 4.28% 1.62% 2.73% 2. Proportionate Adjustment to financial (9 months from April, 2007 to December, 2007 and 3 months from January, 2008 to March, 2008) Particulars Dec-07 9 months Dec-08 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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