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TMI Blog2015 (7) TMI 1220X X X X Extracts X X X X X X X X Extracts X X X X ..... . 3. The Hon'ble DRP and the ld.AO/TPO erred in fact and in law ij determining the ALP by adopting the financial data for a single year (i.e. the financial year 2007-08) of the comparable as against multiple year data considered by the appellant. 4. The DRP and theld.AO/TPO erred in fact and in law in using selective information, which was not available in public domain, obtained u/s133(6) of the IT Act and identifying additional comparables based on the same. 5. The Hon'ble DRP and the ld.AO/TO has erred in determining the ALP based on co. which are not comparable to the appellant due to various factors such as functional comparability, product/intangible segment financials, irreconcilable differences in accounting policy extra ordinary events/business restructuring abnormal fluctuation in margins, exceptional year, lower employee cost levels, fails TPO's own filters etc. 6. The Hon'ble DRP and the ld.TPO/AO has also erred in selecting companies which have earned super profits and super growth not in line with the industry even though a filter was applied by the learned TPO to reject loss making and declining revenue companies. 7. The Hon'ble DRP and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of computation of relief under the sec.10A of the Act. 16. The Hon'ble DRP has erred in law and on facts in upholding the ld. AO's conclusion that the said expense should not be reduced from total turnover for the purpose f computation of relied under section 10A of the Act. Disallowance under section 40a(ia) of the Act. 17. The Hon'ble DRP ld.AO has erred in disallowing an amount of Rs. 7,42,22,683/- under section40(a)(i) of the Act and upholding conclusion that the appellant has failed to deduct tax at source on payments made to certain non-resident vendors which are in the nature of royalty fees for technical service (FTS) and were subject to tax deduction at source (TDS) under provisions of Chapter-XVIIB of the Act, without considering the beneficial provisions of the relevant tax treaty". 3. Ground no.1 is general in nature and does not require any specific adjudication. 3.1 At the time of hearing, learned AR of the assessee has submitted that the assessee does not press ground no.2 to 4,6to 14 and 17 of the grounds of appeal. Therefore, it was pleaded that the ground no.2 to 4 and 6 to 14 and 17 may be dismissed as not pressed. 4. The learned DR has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.Ltd 47.40 13 Infosys BPO Ltd 19.66 14 IServices India Pvt.Ltd 10.77 15 Jindal Intellicom Pvt.Ltd -10.29 16 Mold tex Technologies Ltd 96.66 17 R Systems International Ltd (Seg.) 4.30 18 Spanco Ltd (Seg.) Earlier known as Spanco Telesystems & Solutions Ltd 8.81 19 Wipro Ltd (Seg.) 30.05 20 Alilsec Tehnologies Ltd -13.29 Average 24.75 Thus, the TPO has determined the average margin of the comparable companies at 24.75%. This set of comparables considered by the TPO also includes 5 comparables companies selected by the assessee which are as under; Sl. No Name of the comparable company Op. margin to cost (FY 2007-08) 1 Caliber Point Business Solutions Ltd 10.97 2 Cosmic Global Ltd 23.30 3 Spanco Ltd (SEg.) earlier known as Spanco Telesystems & Solutions Ltd) 8.81 4 Allsec Technologies Ltd -13.29 5 R Systems International Ltd (Seg.) 4.30 The TPO also allowed the working capital adjustment at 0.74% while making adjustment on account of ALP. The TPO worked out the assessee's operating margin at 16.62% and accordingly, proposed an adjustment of Rs. 30,27,18,666/- after allowing the working capital adjustment at 0.72%. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of activities which is low end ITES. The learned AR has further pointed out that though, the TPO for theAY:2010-11 proposed to include Eclerx Services Ltd in the list of comparables however, while passing the final order dated 30.01.14 by the TPO Eclerx was excluded from the final set of comparables selected by the TPO. The learned AR submitted for the AY: 2010-11 the TPO itself had excluded this said Co. by treating the same as not comparable with the assessee. He has referred the show cause notice dated 1.11.2013 at page-589 of paper book no.2 and the TPO order dated 30.1.13 at page no.602 of paper book no.2 in support of his contention that this Co. was found not comparable by the TPO for the purpose of determination of ALP in respect of ITES segment. In support of his contention the learned AR relied upon the decision of the Mumbai Bench of the Tribunal in the case of Maersk Global Centres India (P.) Ltd v. Asstt. CIT [2014] 147 ITD 83 as well as the decision dated 9.7.14 and in case of Lionbridge Technologies (P.) Ltd. v ITO[2014] 151 ITD 553 (Mum. - Trib.). 8. On the other hand, the learned DR has submitted that the objects of assessee regarding low end services and high en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce provider specializing in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services (P)Ltd is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services alongwith multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team dedicated to developing automation tools to support delivery. These software automation tools increase productivity allowing customers to benefit from further cost saving and output gains with better control over quality. Keeping in view the nature of services rendered by M/s eClerx Services (P)Ltd and its functional profile, we are of the view that this company is also mainly engaged in providing high end services involving specialized knowledge and domain expertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sofar as the ITES segment is concerned and therefore, the said Co. cannot be compared with the assessee Co. for the purpose of determining ALP in respect of international transactions of providing ITES to its associated enterprise. Accordingly, we direct the AO/TPO to exclude eClerx Services Ltd., (supra) from the set of comparables selected by the TPO. Mold Tex Technologies Ltd., 12. The learned AR of the assessee has referred to the director's report of M/s Mold Tex Technologies Ltd., and submitted that this Co. was not having an extra ordinary event of demerger of its subsidiary M/s Mold Tek Tech.Ltd., and amalgamated with Tekmen Tool (P)Ltd., The scheme of amalgamation was approved by the Hon'ble Andhra Pradesh High Court vide order dated 15/07/2008 therefore, there was amalgamation and demerger in respect of this Co. during the year under consideration. He has referred to the business activity of the said Co. as involved in the structural engineering KPO. Thus, the learned AR has submitted that this Co. is entirely in the different nature of activity and functions which is not comparable with the assessee. In support of his contention he has relied upon the decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t be taken as comparable to the assessee company which is mainly involved in providing low end services. It may be pertinent to note here that the financial year 2007-08 was a unique ear for Mold Tek Tech. Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool (P) Ltd and Mold Tek Tech.Ltd. and demerger between Mold Tek Technologies Ltd., simultaneously, was sanctioned by the Hon'ble Andhra Pradesh High Court by 15th July, 2008 with the appointed date for amalgamation and demerger being as October, 2007 and April 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company provision for derivative loss of Rs. 6.43 Crores made by Mold Tek Tech. Ltd. was excluded by the AO treating the same as non-operating expenses whereas in the case of Rusabh Diamonds v. Asst.CIT (reported at (2013) 155 TTJ (Mum.) 386 (2013) 89 DTR (Mum.)(Trib.) 57 Ed) it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. 83. For the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mold Tek as comparable which is a Knowledge Processing Company. Thus, the DRP was not justified in the comparing the same with the assessee which is functionally different insofar as assessee is engaged in providing low end back office support services". 16. In view of the above facts and nature of the functions performed by the Mold Tek which have been examined by the Special Bench and found is not compared with the low end ITES service provider Co. we hold that this Co. is functionally not comparable with that of the assessee. Accordingly, we direct the AO/TPO to exclude Mold Tek from the list of comparables. 17. The learned AR of the assessee has submitted that the assessee would not seek further exclusion of other comparables if the TPO/AO is directed to exclude these two companies from the comparables than the mean margin would be within the tolerance range of +=5% and consequently no adjustment can be made on this account. In view of the statement and plea of the learned AR we direct the AO/TPO to re-compute the ALP after excluding the above two Co. namely M/s Eclerx and M/s Mold Tek (Supra) and then determine the adjustment, if any after giving the benefit of tolerance ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator and the deno0minator cannot be different. Therefore, though there is no definition of the term 'total turnover' in section 10A, there is nothing in the said section to mandate that what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined y the Legislature and an ordinary meaning is to be attributed to the same, the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used. When the statute prescribes a formula and in the said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the Legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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