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TMI Blog2017 (9) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... stment proposed by the Additional CIT, TPO,-II, New Delhi (learned TPO) vide order dated January 9, 2014 passed under section 92CA(3) of the Act which was subjected to direction of the learned Dispute Resolution Panel (learned DRP) dated September 23, 2014 under section 144C(5) of the Act. 2. The assessee has raised the following grounds of appeal : 1. That on the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer (AO) is bad in law and void ab initio. 2. That on the facts and in the circumstances of the case and in law, the learned Assessing Officer/learned Transfer Pricing Officer ('TPO')/learned Dispute Resolution Panel ('DRP') erred in making an addition of ₹ 5,40,14,130 to the returned income of the appellant by recomputing the arm's length price of the international transactions under section 92 of the Income-tax Act, 1961 ('Act'). 3. That on the facts and in the circumstances of the case and in law, the reference made by the learned Assessing Officer suffers from jurisdictional error as the learned Assessing Officer has not recorded any reasons in the assessment order ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om secondary sources. It also makes use of forecasting modelling and financial analysis. Typically, it involves industry studies covering the market size, value chair analysis, growth rates and demand and supply projections. EVS SEZ India has conducted studies and prepared research reports for the sectors like. the telecom sector, pharmaceutical sectors, etc. The intellectual property rights for the reports are owned by the end customer. Rapid research : Rapid research assignments typically have 24 hours as tie turnaround time. These are mostly based on brief client requests received from associated enterprises (b) Investment research and financial analytics : EVS SEZ India has a team of employees exclusively dedicated to tracking stocks and mutual funds. Typically, an investment research and financial analytics assignment as discussed above could also be periodic or project based. EVS SEZ India makes use of a variety of research tools including the Aveb, databases and publications apart from analytics and fore casting. The industries covered include financial services (banking and insurance), hi-tech (software, electronics, engineering, nono technology, networking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evelopment, marketing activities and quality assurance for every project undertaken by EVS SEZ India. The associated enterprises, based on the market and economic scenario prepares the general worldwide marketing strategy for the Group. EVS SEZ India secures contracts owing to the brand name and goodwill enjoyed by its associated enterprises. For provision of the aforementioned services, associated enterprises remunerate EVS SEZ India on an hourly basis. Additionally, associated enterprises also reimburse EVS SEZ India at a cost plus 6 per cent. for expenses on telephone calls, translation charges, research reports purchased, web hosting and miscellaneous expenses. Routine functions : These business support functions are a part of the normal course of business and are indispensable in the economic environment. Strategic policies : All long-term policies are developed and formulated by EVS SEZ India in consensus with its associated enterprises. The company's management personnel handle the corporate communications and deal with the direct customers, associate enterprises, etc. Finance and accounting and IT : EVS SEZ India prepares its own financial state ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fail to make payment. This risk is known as customer credit risk. EVS SEZ India is engaged in the provision of information technology enabled services to its associated enterprises for which it gets remunerated on the basis of the service agreement. Accordingly, EVS SEZ India is not exposed to the customer credit risk. The associated enterprises cater to end customers and are responsible for recovery of payments. Accordingly, they are exposed to the customer credit risk. Foreign exchange risk Exchange rate risk relates to the potential variability of profits that can arise because of changes in foreign exchange rates. Such risks arise when doing business in any market that is affected by international trade and can arise even if a company does not conduct actual transactions in a foreign currency. EVS SEZ India is remunerated by its associated enterprises for services provided to it in US Dollars. However, in the case of third party domestic contracts, EVS SEZ India receives its payment in INR. Accordingly, EVS SEZ India is exposed to foreign currency risk for the associated enterprises services. The associated enterprises do not bear this risk to any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s international transaction are at arm's length. The comparable companies margins were adjusted for working capital also. 5. The learned Assessing Officer referred the international transaction to the learned Transfer Pricing Officer who vide order under section 92CA(3) dated January 9, 2014 determine the arm's length price of the international transaction and proposed an adjustment of ₹ 5,40,14,130. While passing the order the learned Transfer Pricing Officer out of the 10 comparables of the assessee accepted only 2 comparables and on its own search included further 10 comparables accepting the profit level indicator of the operating profit/operating cost of the assessee determined the average margin of the comparables at 33.14 per cent. Subsequently, the above adjustment was incorporated in the draft assessment order dated March 12, 2014 against which the objections were filed before the learned Transfer Pricing Officer who issued direction on June 24, 2014 and consequent to those direction the adjustment proposed by the learned Transfer Pricing Officer were upheld. Based on the direction assessment order under section 143(3) read with section 144C of the Act was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces Ltd. (pages 734-37 volume. 3-annual report) (1) Functionally dissimilar (pages 739, 740, 757, 758)-it is a KPO (1) Ameriprise India Pvt. Ltd. (I. T. A. No.7014/Del/2014) (pages 69-70 of CLC) (2) Unreliable data-the standalone financials include the turnover of the subsidiaries also (pages 784, 808, 827) (2) Rampgreen Solutions v. CIT (I. T. A. No. 102/2015) [2015] 377 ITR 533 (Delhi) (3) Significant intangible assets.- (computer software-page 787) (4) Insufficient segmental details 3 Igate global solutions Ltd. (pages 838-42)-volume 3-(Annual report) (1) Exceptional year of operations (amalgamation) (page 888k hence fails TPO s own filter of peculiar economic circumstances (1) Delhi High Court-Pr. CIT v. Ameriprise India P. Ltd.-I. T. A. No. 461/16-pages 79A-79B CLC (2) Functionally different and insufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ss development (3) Techbooks International Pvt. Ltd. No. 240/Del/2015 (pages 29-30 of CLC (4) Significantly large scale of operations (turnover is 22 times more than that of the assessee) (4) Ameriprise India Pvt. Ltd. (I. T. A. No. 7014/Del/2014 (page 63 of CLC) (5) Exceptional year of operations (acquisitions) (pages 950, 956)-hence fails TPO s own filter of peculiar economic circumstances (5) Sun Life India Service Centre P. Ltd. (I. T. A. No. 750/2015) 6. TCS E-Servelational 9-1102--Annual t) (1) Functional dissimilarity (page 1058) (1) United Health Group Information Services P. Ltd. (I. T. A. No. 1038/Del/15/(pages 208-210 of CLC) (2) No segmental data (page 1066) (2) Equant Solutions India P. Ltd. (I. T. A. No. 1202/Del/2015 (pages 184-187 of CLC) (3) Owns significant intangibles (3) Ameriprise India P. Ltd. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R Systems (page 1285-1374 Vol. 4 of annual report Different financial year ending cannot be the sole basis for excluding a comparable (1) Techbooks International Pvt. Ltd. (I. T. A. No. 240/Del/2015) pages 30-33 of CLC) (2) United Healthcare Group Information Services P. Ltd. (I. T. A. No. 1038/Del/2015 page 210-211 of CLC (3) Ameriprise India Pvt. Ltd. (I. T. A. No. 7014/Del/2014 (pages 66-69 of CLC (4) Sun Life India Service Centre P. Ltd. (I. T. A. No. 750/2015) Recently, the Delhi High Court (I. T. A. No. 217/2014) in the case of CIT v. Mckinsey Knowledge Centre India Ltd. has held that different financial year ending cannot be the sole basis of rejection of a comparable, (pages 145-158 of CLC) Even otherwise, the following cases have held for the same comparable, that different f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eral judicial precedents. The learned Dispute Resolution Panel rejected all the above contention of the assessee with respect to this comparable at page Nos. 23 to 26 of its order. 10. The learned Departmental representative reiterated the same facts as stated by lower authorities. 11. We have carefully considered the rival contentions as well as perused the annual accounts of the comparables. At page No. 1172, we have perused schedule 10 of the notes on account wherein it has mentioned that with effect from April 1, 2008 a company which was engaged in the business of medical transcription and coding has been amalgamated with the comparable. It is further stated figures for this year are related to amalgamating company also. The profit and loss account of the comparable shows that sales and services of the company are according to Schedule No. 8. There is no change in the income segment of the assessee after amalgamation as amalgamating company was also having the same business, hence, there is no impact of amalgamation on the company with respect to functions performed. Therefore, merely there is a an amalgamation during the year it cannot be excluded as comparable as it doe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d perused the annual report of the comparable for the assessment year 2010-11 at page No. 734 to 83.7 of the paper book. The functions of the company are described at page No. 23 of its annual report under management discussion and analysis. It provides that eClerx supports its clients through its two business units-capital markets and sales and marketing support. Across both these units, the company supports and improves processes that are core of its customers day-to-day business operations. The company continues to focus on engagements where it can tap the largest percentage of client spend by leveraging its domain expertise and by bringing together consulting, project management and solution based service delivery. In the capital markets division, the company today provides end- to-end financial transaction support services such as trade booking, trade confirmation, asset servicing cash settlements, client servicing risk management and reference data integrity across all assets classes, and its services span both sell side (the larger banks and the buy side the funds and assets managers). Furthermore, the company provides strategic and process consulting services helping client ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... traordinary events during the year as with effect from April 1, 2009 Iget, Malaysia was amalgamated with the company. It is also mentioned that the operations of amalgamating company are similar to that of the comparable. As the functional profile of the amalgamating company and the amalgamated company are similar the mere fact of amalgamation during the year does not make a company otherwise comparable on FAR as non-comparable. On looking of the functional profile of Igate Global Solution it is found that it is engaged in provision of contract sample services and information technology enables services. On the income revenue stream of the assessee is also with respect to information technology enabled services. It is also engaged in BPO activities. In view of this we do not find that the functional profile of this company differs from the assessee. In view of this we do not find any merit in the argument of learned authorised representative for exclusion of this comparable. Hence, the order of the learned Transfer Pricing Officer in retaining this comparable is upheld. 16. The next comparable contested by the learned authorised representative is ICRA Techno Analytics Ltd. stati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decision of the hon'ble Delhi High Court we direct exclusion of this comparable on the size and scale of its operation. 22. TCS eServe International Ltd. The learned authorised representative contested it on the issue of functional dissimilarity, Tata Brand and ownership of intangibles. 23. The learned Departmental representative referred to page No. 39 of the order of learned Transfer Pricing Officer and submitted that all these aspects have been considered by the lower authorities and has given their reasons. 24. We have carefully considered the rival contentions and also perused annual accounts of this submitted at page No. 201 onwards. The revenue stream of the company is transaction processing charges and during the year it has earned ₹ 150 crores. It is mainly engaged in the business of software testing, verification and validation of software at the time of implementation of the software and data centre management activities. The co-ordinate Bench in case of TIBCO Software India Pvt. Ltd. v. Deputy CIT (I. T. A. No. 2536/PN/2012 dated February 11, 2015) has discussed the profile as to what amounts to verification and validation in the context of software ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee is now withdrawing the above comparable which was selected by the assessee itself. It is very unfortunate that despite preparing its transfer pricing documents for financial year 2009-10 in 2010 the assessee did not contest this comparable or even admitted its mistake either before Assessing Officer or Dispute Resolution Panel that how it was originally selected before us it is contesting for exclusion of this comparable after almost seven years. We are conscious of the decision of the hon'ble Special Bench in the case of Quark Systems Ltd. wherein the assessee was allowed to withdraw one of the comparables selected by the assessee because of initial years of the transfer pricing laws and in that comparable the FAR was not in dispute but the error was of filter. On identical facts and circumstances in Evalueserve.com Pvt. Ltd. v. ITO [2017] 58 ITR (Trib) 208 (Delhi); TS390-ITAT-2017-(DEL)TP, it has been held that those were the initial years of the transfer pricing law but the year before us is almost a decade after the transfer pricing laws were introduced. In view of this we reject the contention of the assessee of withdrawing of its own comparable for the reason that th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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