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TMI Blog2016 (6) TMI 1253X X X X Extracts X X X X X X X X Extracts X X X X ..... - - - Dated:- 9-6-2016 - SHRI N. K. SAINI, ACCOUNTANT MEMBER AND SMT. BEENA A. PILLAI, JUDICIAL MEMBER Appellant by :Shri Ved Jin, CA Respondent by :Shri Amrendra Kumar, CIT DR ORDER PER BEENA A. PILLAI, JM: The present appeal of the assessee has been filed against the order of ITO, Ward 13 (4), New Delhi dated 27/11/2013 for assessment year 2009-10 on the following grounds of appeal: 1.1 That on the facts and circumstances of the case and law on the point, the Learned Assessing Officer (Ld. A.O.)/ Transfer Pricing Officer (Ld. T.P.O.)/ Hon'ble Dispute Resolution Panel (Hon'ble DPR) has erred in making an adjustment of ₹ 6,93,66,342/- to the income of the Appellant on account of difference in Arm Length Price for transaction entered with its AEs. 1.2 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in passing assessment order vide his order dated 27/11/2013 without giving effect of Hon'ble DRP's directions. This makes order of the Ld. Assessing officer null and void. 1.3 That on the facts and circumstances of the case and law on the point, the Ld. T.P.O/ Hon'b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad of operating cost incurred in relation to transaction with AEs. 1.11 That on the facts and circumstances of the case and law on the point, the Ld. T.P.O/ Hon'ble DRP has erred in rejecting most appropriate method applied by Appellant Company. 1.12 The Appellant craves leave to add to, alter, modify, substantiate, delete and/or to rescind all or any of the grounds of objection on or before the final hearing, if necessity so arises. For Domestic Transactions issue: 2.1 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in making addition of ₹ 3,51,102/- u/s 14A of the Income Tax Act, 1961. 2. 2 That on the facts and circumstances of the case and law on the point, the Ld. Assessing Officer has erred in making disallowance U/S 14A of the Act without giving clear finding of incurring of expenditure in relation to exempt income. 2.3 That on the facts and circumstances of the case and law on the point, the Hon'ble ORP has erred in ignoring the fact that recording of satisfaction by the Ld. Assessing Officer for rejecting appellant's claim of expenditure in relation to exempt income should have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , Parsons Avenue, Bala Cynwyd. PA, USA 13,45,46,027 26,12,645 2. OKS Group Address: 303, Parsons Avenue, Bala Cynwyd. PA, USA 2,44,44,157 3. OKS Ameridial Address: 4535, Straussar Street, North Canton OH 44720 1,68,69,379 Total 17,84,72,208 2.3 The international transactions entered into by the assessee was in respect of data processing amounting to ₹ 17,84,72,208/-rendered to its AE. The assessee has benchmarked the international transaction of data processing, using Cost Plus Method (CPM) as the most appropriate method (MAM) to arrive at Arm s Length Price (ALP), and has shown operating profit margin at 32.03% with AE and at 36.27% with non-AE. The assessee has used an alternate analysis using transactional net method (TNMM). In the TNMM analysis, the assessee has calculated the operating profit to total cost (OP/TC) ratio as the profit level indicator (PLI). The assessee calculated the PLI at 9.17% on cost, whereas the average PLI of the comparables was calculat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Accentia Tech 52.52% 2. Cosmic global 50.70% 3. Crossdomain 25.63% 4. Infosys BPO 24.28% 5. Eclerx services Ltd 66.01% 6. Aditya Birla Minacs Worldwide Ltd 11.95% AVERAGE 38.50% 2.6 Further, while giving effect to the DRP order, the Ld. A.O. disallowed the claim of deduction under section 14 A to an extent of ₹ 3,51,102/- and passed the assessment order on 12/03/2013 making the impugned additions. 3. Aggrieved by the order of the Ld.AO the assessee is in appeal before us in respect of the adjustments made to ALP and corporate issue being disallowance under section 14 A of the IT act, 1961. 4. We first take up the issue of adjustment to arms length price. 4.1 We have heard the rival contentions of both the sides, perused the orders passed by the authorities below, the paper books filed by the assessee and the case law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sented at pages 713 to 762. It is categorically been submitted that, the assessee does not undertake any significant research and development on its operation. The main functions performed by the assessee are: 1. Corporate strategy determination 2. Marketing and sales function 3. Finance accounting Treasury and legal function 4. Human resource management function. The price for the services rendered by the assessee to its AE is determined after considering various factors like: a) Time involved; b) level of software skills required; c) training of employees; d) hardware and technology specifications and e) complexities of the jobs in hand. 5.1.1 The company has characterised itself in the TP study as being engaged in data processing and voice processing which involves low skilled manpower, any graduate or undergraduate are employed to execute the projects. The assessee provides services to its AE s as well as non-AE s and the nature of services rendered to both are similar. However the assessee is mainly dependent on its AEs for its business. On perusal of the financial information placed at page 744 of the TP study, the main revenue is derived fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is available at page 781 to 946. 5.3.5 We find that this company, apart from being engaged in the business of ITES, is also dealing with software products. As the segmental figures of this company are not available, the Ld. TPO has taken it at entity level. As regards the objection of the Ld.AR regarding the acquisition undertaken by this company, we find from the annual report that this comparable company is in the process of expansion strategy through amalgamation, acquisitions, mergers, joint ventures. The decision of coordinate bench of this tribunal in Macquaire global services (P) Ltd versus DCIT reported in (2015) 55 taxmann.com 259 has held that this company cannot be considered as a comparable because of exceptional financial results due to mergers/demergers etc. Similar view has been taken by other benches of this Tribunal, in the case of Ameripraise India (P) Ltd vs. ACIT reported in (2015) 62 taxmann.com 237. From the financial study of this comparable company it is very much clear that the company is into acquisition of 5 more companies in USA and UK with operations in the areas of medical billing and coding and medical transcription, further the company has got a f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the total expenses. The entire outsourcing is confined to translation charges paid at ₹ 3 crore, constitutes a large chunk of this company s income, for which the services were mainly outsourced this company cannot be selected as a comparable on an entity level. The decision of coordinate bench of this tribunal in Macquaire global services (P) Ltd versus DCIT reported in (2015) 55 taxmann.com 259 has held that this company cannot be considered as a comparable because of exceptional financial results. 5.4.4 We therefore direct the ld.TPO to exclude this company as a comparable. 5.5 Crossdomain Solutions Private Limited: 5.5.1 The assessee objected the inclusion of this company proposed to be used in the final set of comparables by the TPO by contending that it was not functionally comparable. The TPO rejected the contentions by holding that it was also providing IT enabled services. The Ld.AR contended that this company is a high-end KPO. The ld.AR has placed reliance upon the decision of Hyderabad Tribunal in the case of Market Tools Research (P) Ltd VS. DCIT reported in (2014) 148 ITD 631 wherein it has been held that this company is providing services which ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 011, which has been confirmed by the Hon ble Delhi High Court wide order dated 10/07/2013, the Hon'ble High Court has upheld the finding of this Tribunal that companies having high turnover cannot be considered as a comparable. 5.6.4 Respectfully following the ratio laid down by Hon'ble High Court, we direct the learned TPO to exclude this company from the final list of comparables. 5.7 e-Clerx services Ltd: 5.7.1 The assessee prays for exclusion of this company as comparable, as this company provides data analytics and customised process solution to a host of global clients. It is submitted that it delivers data solutions to complex business needs through costeffective combination of people, process and technology. The ld.AR submitted that this Tribunal in assessee s own case for assessment year 2008-09 has excluded it from the comparables. 5.7.2 On the contrary the ld. DR submits that the company is engaged in similar functions of IT enabled services and the company passes all the filters. 5.7.3 We have perused the submissions made by both the parties and the order of assessee s own case for assessment year 2008-09 in I.T.A.No. 6541/Del/2012, order dated 07 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mainly engaged in providing low-end services to the group concerns. 5.7.4 Respectfully following the above decision of this Tribunal, we direct the Ld. TPO to exclude this company from the list of comparables. 5.8 Allsec Technologies Ltd. 5.8.1 The assessee is seeking to include this company as a comparable as it has been accepted by this Tribunal in assessee s own case for assessment year 2008-09 wide order dated 07/08/2015. He accordingly prayed for inclusion of this company to the final list of comparable following the rule of consistency. The Ld. A.R. relied upon the decision of Hon ble Supreme Court in the case of Radha Swami Satsang versus CIT reported in (1992) 193 ITR 321. 5.8.2 On the contrary the ld. DR submitted that it is a functionally dissimilar company due to merger of this company with B2K Corpn. Pvt. Ltd. The ld. DR has submitted that the issue relating to the exclusion / inclusion of this company can be sent back to the learned TPO for verification. 5.8.3 We have perused the orders of the authorities below and the submissions advanced by both the parties. It is observed that this company has been accepted by this tribunal in assessee s own case for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to exclusion /f inclusion of this company can be sent back to the learned TPO for verification. 5.10.2 We have perused the financial accounts of this comparable placed at page 1197 to1196 of the paper book. It is observed that the services from which income is generated of this company has not been clearly specified. The statement of accounts does not clearly enunciates the types of services rendered by this company. 5.10.3 We are, therefore, setting aside this comparable to the files of the ld.TPO for due verification and to consider the same afresh for inclusion or exclusion in the final list of comparables on the result of functional similarity. 5.11 Accordingly ground No. 1 of the assessee s appeal stands disposed off. 6. Ground No. 2 6.1 The assessee s has challenged the addition made by the ld.AO under section 14A of I.T. Act, 1961, read with Rule 8D of the I.T. Rules, 1962. 6.2 During the year under consideration the assessee had earned long-term capital gain of ₹ 31,76,476/- and dividend income of ₹ 9,30,583/-. While fling the return of income the assessee had suo motu disallowed an amount of ₹ 13,115/- on account of demat charges ..... X X X X Extracts X X X X X X X X Extracts X X X X
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