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TMI Blog2015 (7) TMI 561X X X X Extracts X X X X X X X X Extracts X X X X ..... by two companies for carrying out its functions. We, accordingly, direct the AO to exclude this comparable. Eclerk Services Ltd. - primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of determining ALP of the transactions between the assessee company with its AEs. We, accordingly, direct that this company be excluded from the list of comparables finally taken by the AO/ TPO as per the direction of the DRP. Aditya Birla Minacs Worldwide Limited; and Microgenetic Systems Ltd. - Admittedly the AO while giving effect to the direction of DRP has adopted the PLI of Aditya Birla Minacs Worldwide Limited and of Microgenetic Systems Ltd., on the basis of safe harbor rule and substituted the margin that was calculated by TPO in his order. This could not be done by AO unless there was direction by ld. DRP. The AO could not vary the margins as computed by TPO in his order, because once reference has been made by AO under section 92CA(1), then in view of the provisions of section 92CA(4), the AO is required to compute the total income of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Profit ( OP )/ Total Cost ( TC ) No. of comparables 14 Comparables mean margin (working capital adjusted) 10.39% Data used Multiple years- FYs 2006-07, 2007-08 and 2008-09 Appellant s margin 17.01% Conclusion At arm s length 2.3. Ld. TPO disregarded the economic analysis carried out by the assessee on the basis of adopting multiple year data in respect of comparables and directed the assessee to submit updated current year data for the comparable companies considered in its TP studies. 2.4. The assessee conducted a fresh search by applying following quantitative filters - Companies having other operating income (other than 'manufacturing' and 'trading' income) to sales greater than 50% were accepted; - Companies having research development costs to sales less than 3% were accepted; - Companies having net fixed assets to sales less than 200% were accepted; - Companies having average sales less than INR 1 crore were reject ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt s comparable 4. Eclerx Services Ltd. 47.00% New comparable introduced by the TPO 5. Genesys International Corporation Ltd. 58.45% New Comparable introduced by the TPO 6. Infosys BPO Limited 15.83% Appellant s comparable 7. Microgenetic Systems Ltd. 10.00% New Comparable introduced by the TPO Arithmetic Mean 30.99% 2.7. He, accordingly, made an adjustment of ₹ 5,07,62,260/-. 2.8. Ld. TPO also issued a show cause notice dated 2-12-2012 pointing out that as per examination of the balance-sheet, receivables were taken which implied that the payment for the invoices raised by the assessee had not been received within the stipulated time as provided in service agreement with AE. Accordingly, assessee was required to furnish the time period for payment as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aggrieved with the assessment order read with order passed u/s 154, 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 Assessing Officer ('Ld AO') in pursuance to the directions issued by the Learned Dispute Resolution Panel ('Ld DRP'), is bad in law and void ab-initio. 2. The Ld. DRP erred both on facts and in law in confirming the Ld. AO/ Transfer Pricing Officer's (TPO) action of making an adjustment of ₹ 62,233,832 to the income of the appellant by holding that the international transactions undertaken by the appellant do not satisfy the arm's length principle envisaged under the Income-tax Act 1961 ('Act'). In doing so the Ld. DRP has grossly erred in agreeing with the Ld. TPO's action of; 2.1. not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2. ignoring the fact that the appellant is entitled to tax holiday under section 10A of the Act on its profits and therefore would not have any untoward motive of deriving a tax advantage by manip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant the benefit of the ( + / -) 5% range available to the appellant as per the old proviso to section 92C(2) of the Act; and 2.11. not allowing the appellant the benefit of working capital adjustment 2.12. disregarding judicial pronouncements in India in undertaking the TP adjustment. 3. Imputing interest on receivables from the Associated Enterprise CAE') beyond the credit period of the appellant on an ad hoc basis of credit period and interest rate, while completely disregarding the detailed submissions made by the appellant explain that such adjustments are not mandated under the facts and circumstances of the appellant; 4. The Ld. AO erred in confirming the addition of imputed interest made by the Ld. TPO, without having considered the directions by the Ld. DRP and not giving any opportunity to the Appellant to be heard or to explain, that the Appellant has relevant documents to clearly layout the terms of payment supported by the invoices and agreements in place (which clearly state the payment terms being 180 days), which have been accepted by the Ld. TPO for the Appellant in the succeeding AY 2010-11 ; 5. The Ld. AO erred in not verifying the factual e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. He further referred to page 107 of the appeal set and pointed out that on internal page 55 the TPO has observed as under: The contention of the assessee regarding functional difference is not acceptable as the assessee itself has not gone into vertical segmentation while doing it TP documentation as already documented in the earlier part of this order. Final comparables considered by the taxpayer as well as the TPO consists of companies engaged in both high end and low end IT enabled services . 6.2. He further relied on the decision of ITAT Hyderabad Bench in the case of Deloitte consultant Pvt. Ltd., wherein it has been held as under: It appears that the VITL has outsourced the manpower and the cost of outsourcing appears to have been included in the other heads of the expenditure instead of wages- employee cost. Moreover, the intangibles will not materially affect the price of profit earning. By outsourcing the manpower, the VITL would have incurred more cost compared to the assessee company, thus resulting in lesser operating profit. But, having considering the findings of the TPO, we find that the intangibles or outsourcing the manpower will not materially aff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d opinion that this case is required to be excluded from the list of comparables. We order accordingly. 7.1. We find that in the case of Mercer Consulting (India) Pvt. Ltd. (supra) also the company was engaged in rendering IT and IT enabled services to its AEs. This company was providing service in the nature of application development, quality assurance, application maintenance, implementation services, helpdesk services, administrative processing, contribution processing, health and benefits processing and pension plan valuation services to the clients of its AEs for and on their behalf for which it is compensated on cost plus basis. Therefore, we do not find any reason to take a different view in the case of present assessee which is also rendering almost similar services. It is well settled law that in TP cases identical replica of the tested party cannot be found and one has to consider the broad similarities between the tested party and the comparables. The business model of assessee is not comparable to coral hub particularly on account of different models adopted by two companies for carrying out its functions. We, accordingly, direct the AO to exclude this comparable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the business as shared service centre and rendering transaction processing, data entry, reconciliation of statements, audit of shipping documents and other similar support services; and also rendering I.T. services such as process support, process optimization and technical support services, the Tribunal in para 82 of its order observed as under: In so far as M/s eClerx Services Limited is concerned, the relevant formation is available in the form of annual report for financial year 2007 -08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. t is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals - financial services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %. He submitted that no opportunity was provided to assessee for varying the PLI and no basis for the same has been pointed out. 14. Ld. counsel referred to page 296 of the PB and pointed out that assessee had computed the PLI at -2.52% in the TP report. 15. As regards Microgenetic Systems Ltd., ld. counsel referred to page 122 of the PB and pointed out that TPO had taken the PLI at 10% in original order but while giving effect to the DRP direction, as contained at page 53 of appeal set, had taken 21.47%. He advanced the same argument in regard to this comparable also as in regard to Aditya Birla Minacs Worldwide Limited. (supra). 16. We have considered the submissions of both the parties and perused the record of the case. Admittedly the AO while giving effect to the direction of DRP has adopted the PLI of Aditya Birla Minacs Worldwide Limited and of Microgenetic Systems Ltd., on the basis of safe harbor rule and substituted the margin that was calculated by TPO in his order. This could not be done by AO unless there was direction by ld. DRP. The AO could not vary the margins as computed by TPO in his order, because once reference has been made by AO under section 92CA(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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