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TMI Blog2017 (11) TMI 1592X X X X Extracts X X X X X X X X Extracts X X X X ..... to the facts and circumstances of the present case. Transfer Pricing Adjustment 2. The Honourable Dispute Resolution Panel ("DRP") has erred in law and on facts in upholding the adjustment to the arm's length price made by the learned AO to the income of the assessee, based on the order, purportedly under section 92CA of the Act, passed by Additional Director of Income-tax, Transfer Pricing Officer - II (1) ("TPO"). 3. Rejection of the transfer pricing documentation of the Appellant 3.1 The Honourable DRP and the learned TPO has erred in law and on facts in rejecting the Transfer Pricing ('TP") documentation which has been prepared by the Appellant in the manner as contemplated under the relevant provisions of the Act and the Income-tax Rules,1962 ("the Rules"). 3.2 The Honourable DRP and learned TPO has erred in law and on facts in determining an adjustment of Rs. 848,162 to the income of NCS India, without first establishing that any of the conditions specified in clauses (a) to (d) to section 92C(3) of the Act were attracted. 3.3 The Honourable DRP has erred in law and on facts in upholding the TPO's/AO's finding that there are defects in the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Technologies Limited - CG VAK Software and Exports Limited - Informed Technologies Limited - Microgenetics Systems Limited 5.5 The learned AO has erred in law and on facts by upholding the adjustment to the income of NCS India proposed by the TP officer consequent to incorrectly computing the ALP in respect of the international transactions undertaken by NCS India with its associated enterprises. 6. Risk Adjustment and working capital adjustment 6.1. The Honourable DRP and the learned AO/ TPO have erred in not appreciating that the appellant, being a captive service provider operated at lower risk levels as compared to comparable companies, which carry higher risks and accordingly erred in not granting appropriate risk adjustments to the margins of the comparables. 6.2. The Honourable DRP has erred in upholding the TPO's/AO's conclusion that there exists a single customer and political risk and that such a risk nullifies any risk adjustment that could be provided. Other corporate tax matters 7. The Honourable Dispute Resolution Panel ("DRP") has erred, in law and on facts, in making an observation that the Appellant is a permanent establishment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aving margin of 11.72% by using multiple year data and have found its international transactions at arm's length. Pursuant to the showcause notice issued by ld. TPO, the taxpayer filed various submissions, from which TPO proceeded to conclude that the assessee has not given any bifurcation of cost of various services as it was providing ITES business support and technical support services to its AE. TPO also noticed that the taxpayer has only selected ITES and software companies to benchmark its international transactions. 6. After applying various filters and during the TP proceedings, a fresh search was conducted on the basis of filters applied by TPO and the taxpayer has selected 8 comparables. The ld. TPO after discussing all the objections raised by the taxpayer selected 9 companies as comparables for benchmarking the international transactions qua ITES segment having average margin of 37.72%. Similar set of comparables have been taken by the ld. TPO for benchmarking the international transaction qua business support services segment having average margin of 22.35%. Accordingly, TPO proceeded to compute the Arm's Length Price (ALP) of support services for ITES segment and ALP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pages 33, 36 & 32 of the paper book containing its annual report. 15. As far as functional dissimilarity of Accentia vis-à-vis the taxpayer is concerned, perusal of the annual report at page 33 categorically supports the contention of the ld. AR for the taxpayer that it is functionally dissimilar because Accentia services and solutions are focused in two main area : (i) Healthcare Receivables Cycle Management (HRCM) and (ii) software products for Business Processing Outsourcing (BPO). 16. So far as question of extra ordinary events during the year under consideration is concerned, it is apparent from page 32 of the financials of Accentia that Accentia acquires 10% stakes in Trans Services Inc., USA leading to abnormal growth in sale (57%) due to restructuring activities. Furthermore the ld. AR for the taxpayer contended that complete segmental data is not available and drew our attention to page 61 of the annual report i.e. schedules forming part of profit & loss account. 17. Ld. DR for the Revenue to repel the arguments addressed by ld. AR for the taxpayer on functional dissimilarity contended that coding is basically a software development and that income from coding i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ground of functional dissimilarity, different business model; earning super-normal profit, abnormal growth in sales and insufficient segmental data. Ld. AR for the taxpayer relied on the decision of Macquarie Global Services (P.) Ltd. vs. DCIT (supra). 24. Ld. DR contended that transcription and translation services are basically ITES and does not make Cosmic functionally different. However, this contention is not tenable because Cosmic outsourced its activities and outsourcing expenses constitute 57% of the total expenses and this company cannot be chosen as a comparable on entity level. 25. Perusal of the annual report of Cosmic, available at page 104 of the paper book, in Schedule 13 i.e. Notes Forming part of Financial Accounts ending March 31, 2009 contains the revenue recognition as under :- "1.2 Revenue recognition: In respect of Medical Transcription Services. and Translation Services the Company follows the practice of raising monthly invoices job-wise on the clients based on the number of lines and number of words respectively, etc., as accepted by them and in respect of Accounts BPO services the invoices are raised after acceptance by the clients on mutually agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) Ltd. vs. DCIT - (2010) 38 sot 307 (CHD)(SB). 30. Undisputedly, the taxpayer is a low end BPO rendering services as a captive service provider. Comparability of Eclerx has been examined by the coordinate Bench of the Tribunal in Macquarie Global Services (P.) Ltd. vs. DCIT (supra) for AY 2009-10- wherein it was ordered to be excluded as a comparable to the companies providing BPO / low end services / ITES having supernormal profit. Coordinate Bench of the Tribunal in Macquarie Global Services (P.) Ltd. vs. DCIT (supra) ordered to exclude Eclerx by returning following findings :- "24. We have perused the Annual report of this company, a copy of which s available on pages 494 onward of the paper book, It can be seen that it is a Knowledge Process Outsourcing (KPO) company providing data analytics and data process solutions to global clients. This company provides end to end support through trade lifecycle including trade confirmation, settlements, etc. It also provides sales and marketing support services to leading global manufacturing, retail, travel and leisure companies through its pricing and profitability services. From the above narration of the nature of business done by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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