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TMI Blog2016 (9) TMI 1392X X X X Extracts X X X X X X X X Extracts X X X X ..... A No. 1052/Del/2014 for the assessment year 2009-10. Following grounds have been raised in this appeal: 1. That the assessing officer erred on facts and in law in completing assessment under section 144C read with section 143(3) of the Income-tax Act (the Act) at an income of ₹ 5,11,78,590 as against the returned income of ₹ 1,42,06,264. 2. That the assessing officer / TPO erred on facts and in law in making an addition of ₹ 3,69,72,323 allegedly on account of difference in the arm's length price of the 'international transactions' of BPO / ITES Services rendered to the associated enterprise on the basis of the order passed under section 92CA(3) of the Act by the TPO. 3. That on facts and circumstances of the case and in law, the DRP/TPO erred in not holding that since the associated enterprise ( the AE ) has incurred a loss, in relation to ITES services rendered by the appellant to the AE, which, in turn, were rendered by the AE to ultimate third party customer(s), no Transfer Pricing adjustment was warranted. 4. That on facts and circumstances of the case and in law, the DRP/TPO erred in not holding that the Transfer Pricing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. That on the facts and in the circumstances of the case and in law, the DRP erred in rejecting the contention of the appellant regarding risk adjustment, holding that in absence of robust and reliable data, both for the assessee and for the comparables, risk adjustment cannot be considered for enhancing comparability. 14. That the assessing officer erred on facts and in law in levying interest under Section 234B and Section 234D of the Act. 15. That the assessing officer erred on facts and in law in initiating penalty proceedings under Section 271(1)(c) of the Act. The appellant craves leave to add, alter, amend or vary from the aforesaid grounds of appeal before or at the time of hearing. 3. Ground Nos. 1 2 are general in nature, Ground No. 15 is prematurely raised, so these grounds do not require any comment on our part. Ground Nos. 6 to 9, 12 13 were not pressed so these are dismissed as not pressed. As regards to Ground Nos. 3, 4, 5, the ld. Counsel for the assessee stated that these are academic in nature, therefore, do not require any comments on our part. 4. Vide Ground Nos. 10 11, the grievance of the assessee relates to the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2. Aditya Birla Minacs Worldwide Ltd. 11.95 3. Coral Hub Ltd. 37.03 4. Cosmic Global Ltd. 50.70 5. Crossdomain Solutions Pvt. Ltd. 25.63 6. Igate Global 22.58 7. Infosys BPO Ltd. 24.28 Arithmetic Mean 32.10 6. The TPO proposed the adjustment of ₹ 6,79,65,902/- and accordingly, the AO passed the draft assessment order. The assessee raised the objections before the ld. DRP who vide order dated 31.10.2013, directed the TPO to exclude Accentia Technologies Ltd., Coral Hub Ltd. and Cosmic Global Ltd. from the final set of comparable companies and to include Allsec Technologies in the final set of comparables. However, the TPO while giving effect to the directions of the DRP, failed to include Allsec Technologies Ltd. in the final set of comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. Vs ACIT in ITA No. 6977/Mum/2012 Mindcrest (India) Pvt. Ltd. Vs DCIT in ITA No. 7289/Mum/2012 Fortune Infotech Ltd. Vs ACIT in ITA No. 274/Ahd/2013 Global e:Business Operations Pvt. Ltd. Vs DCIT in ITA No. 1678/Bang/2012 9. It was further submitted that the TPO while computing the margin of other comparable companies although considered foreign exchange income/loss as non-operating in nature but wrongly worked out the operating profit margin and if the foreign exchange fluctuation loss incurred by the assessee is considered as non-operating item of expenses, the correct operating profit margin of the assessee works out to 12.83%, which is higher than the margin earned by comparable companies, therefore, no adjustment is required to be made on account of arm s length price. 10. In his rival submissions the ld. DR supported the orders of the TPO/AO and reiterated the observations made in their respective orders. 11. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the TPO while working out the OP/OC ratio excluded those comparables in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es less than 75% of the total income applied by the TPO, without appreciating that selection of comparable companies on the basis of such quantitative filters alone, defies the purpose of the benchmarking analysis. 2.2 That the DRP/TPO erred on facts and in law in rejecting following comparable companies on the filter of export sales less than 75%, without appreciating that the companies were otherwise functionally comparable to the appellant: (i) Firstsource Solutions Ltd. (ii) Optimus Global Services Ltd. (iii) Sparsh BPO Services Ltd. 2.3 That the DRP/TPO erred on facts and in law in rejecting Optimus Global Services Ltd. and Sparsh BPO Services Ltd. allegedly holding that the said companies are having negative net worth and therefore that are affected by some peculiar economic circumstances. 2.4 That the DRP/TPO erred on facts and in law in considering Omega Healthcare Limited as comparable to the appellant without appreciating the fact that the Profit Loss account of the company for the financial year 2009-10 is not available in public domain. 2.5 That the DRP/TPO erred on facts and in law in considering TCS E-Serve Ltd. and TCS E-Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumstances of the case and in law, the DRP/TPO erred in rejecting the contention of the appellant regarding risk 'adjustment, allegedly holding that no evidence has been provided by the appellant to prove that risk has actually been undertaken by the comparable companies. 2.12 That the DRP/ TPO erred on facts and in law in not appreciating that since the associated enterprise has ultimately erred a loss in undertaking transaction of provision of IT enabled services with the appellant, no further transfer pricing adjustment could be imputed to the income of the appellant. 2.13 That on facts and circumstances of the case and in law, the DRP/TPO erred in not appreciating the fact that the Transfer Pricing adjustment, at best, could not exceed the amount of margin retained by the associated enterprises. 3. That the assessing officer erred on facts and in law in levying interest under Section 234A and Section 234C of the Act. The appellant craves leave to add, amend, alter or vary, any of the aforesaid grounds of appeal before or at the time of hearing of the appeal. 14. Ground Nos. 1 2 are general in nature so do not require any comment on our part ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the objections before the DRP and submitted that the TPO wrongly rejected the following companies on the filter of export sales less than 75% without appreciating that the said companies were functionally comparable to the assessee: Particulars OP/OC (%) Firstsource Solutions Ltd. 9.93% Optimus Global Services Ltd. 13.31% Sparsh BPO Services Ltd. 2.77% 18. It was further stated that the following companies did not satisfy the filter of related party transactions applied by the TPO: S. No. Name of the company OP/OC (%) 1. TCS E-Serve Ltd. 53.80% 2. TCS E-Serve International Ltd. 63.38% 3. Cosmic Global Ltd. 18.28% 19. It was submitted that first two of the aforesaid companies were super normal profit companies as compared to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said company were available to the TPO. We, therefore, set aside this issue back to the file of the TPO/AO to be decided afresh by taking into consideration the financial datas of the said company relating to the year under consideration. 24. As regards to the TCS E-Serve Ltd. and TCS E-Serve International Ltd., the ld. Counsel for the assessee submitted that these companies were not to be included in the list of the comparables as has been held in the case of Symphony Marketing Solutions India (P.) Ltd. Vs ITO, Ward-12, Bangalore in IT(TP)A No. 1316/Bang/2012 for the assessment year 2008-09 decided by the ITAT C Bench, Bangalore vide order dated 14.08.2013 and the order dated 10.10.2014 by the ITAT K Bench, Mumbai in ITA No. 2152/Mum/2014 for the assessment year 2009-10 in the case of M/s Willis Processing Services (India) (P.) Ltd. Vs DCIT-2(3), Mumbai. Our attention was drawn towards page nos. 317 to 323 of the assessee s paper book. The reliance was also placed on the decision of the ITAT Delhi Bench in the case of Equant Solutions India Pvt. Ltd. Vs DCIT in ITA No. 1202/Del/2015 (copy of which is placed at page nos. 306A to 321 of the assessee s paper book). As regards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nitely results in opening higher profits to this company. In view of the following decisions, the same is required to be excluded and hence it is ordered accordingly. 23. TCS E Serve International Ltd, a. This comparable was taken by TPO where the margin is 54.02%. The TPO has taken this comparable considered this a company in IPS industry and considered it as a singled segment. The TPO was also of the view that there are no exceptional circumstances, which is related in the increase in the profit. Before DRP the argument of the assessee were rejected and it was held that far profile of the company is similar to that of the appellant. Before us it was submitted that in addition to BPO services this company is engaged in providing technical services like software testing, verification and validation of the software which falls under software development services activity, which also includes transaction processing, technical services, therefore it is functionally dissimilar. Further it was also contended that there is no segmental data ITES and software development activity of the company is available and this comparable owns substantial amount of intangibles in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uge intangible and use of Tata Brand, which has definitely benefited this comparable, it is directed to be excluded. 27. So, respectfully following the aforesaid referred to order of the Co-ordinate Bench, we direct the AO/TPO to exclude the said companies i.e. M/s Infosys BPO, M/s TCS E-Serve International Ltd. and M/s TCS E-Serve Ltd. from the list of the comparables while working out the operating profit/operating cost ratio. 28. It is also noticed that the issue relating to M/s Cosmic Global Ltd. agitated by the assessee, has been decided by the ITAT Delhi Bench I , New Delhi in ITA No. 5207/Del/2013 for the assessment year 2008-09 in the case of Xchanging Technology Services India Pvt. Ltd. Vs ACIT vide order dated 10.06.2015 and the relevant findings have been given in para 18 of the said order which read as under: 18. While, we considered the functionally comparability issue of Cosmic Global services with the present assessee company then we find ourselves view taken by the Tribunal in its order in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (Supra) wherein for the same AY 2008-09 it was held that the major part of inc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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