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TMI Blog2017 (12) TMI 924X X X X Extracts X X X X X X X X Extracts X X X X ..... e Shri S.S. Tomar, Advocate Shri Ankit Sahni, Advocate For The REVENUE : Shri Sanjay I. Baru, CIT DR ORDER PER KULDIP SINGH, JUDICIAL MEMBER : Since common questions of facts and law have been raised in both the aforesaid appeals, the same are being disposed off by way of consolidated order to avoid repetition of discussion. ITA No.4048/Del./2013 2. The Appellant, M/s. Transcend MT Services Pvt. Ltd. (formerly known as Heartland Information and Consultancy Services Pvt. Ltd.)(in relation to Heartland Bangalore Transcription and Services Pvt. Ltd. (HBTS)) (hereinafter referred to as 'the taxpayer - HBTS') by filing the present appeal being ITA No.4048/Del/2013 sought to set aside the impugned order dated 30.04.2013, passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2006-07 on the grounds inter alia that :- "On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('DRP'), the Transfer Pricing Officer ("TPO") and consequently the Assessing Officer ('AO') have err ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. (HDTS)) (hereinafter referred to as 'the taxpayer - HDTS') by filing the present appeal being ITA No.4501/Del/2013 sought to set aside the impugned order dated 31.05.2013, passed by the AO in consonance with the orders passed by the ld. DRP/TPO under section 143 (3) read with section 144C of the Income-tax Act, 1961 (for short 'the Act') qua the assessment year 2006-07 on the grounds inter alia that :- "On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel ('DRP'), the Transfer Pricing Officer ("TPO") and consequently the Assessing Officer ('AO') have erred: . Transfer Pricing Adjustments 1 In making an adjustment of ₹ 1,60,81,312 to the value of the international transaction of provision of medical transcription services. 1.1 In determining the above adjustment have, in particular erred in: 1.1.1 Using financial information of the comparable companies relating to the financial year ('FY') 2005-06 although such information was not available when the assessee maintained documentation as per the requirement of the act; 1.1.2 Rejecting certain functionally comparable companies, o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Briefly stated the facts necessary for adjudication of the controversy at hand are : erstwhile Heartland Bangalore Transcription and Services Private Limited (HBTS), the taxpayer - HBTS was amalgamated with the Heartland Information and Consultancy Services Private Ltd. (HICS) w.e.f. April 1, 2008. So, the taxpayer - HBTS ceased to exist w.e.f 01.04.2008. Then the name of HICS was changed to M/s. Transcend MT Services Private Limited (TMTSPL). 5. The taxpayer - HBTS is a subsidiary of Heartland Asia (Mauritius) Limited with 99.99% of shareholding by Heartland Asia (Mauritius) Limited and 0.01% held by HCR Information Corporation USA. The taxpayer - HBTS is 100% export oriented unit registered under Software Technology Park Scheme (STP) of Department of Electronics, Government of India. The taxpayer - HBTS is into IT Enabled Back Office Medical Transcription services as part of its business operation, providing medical transcription services exclusively to HCR Information Corporation USA, the ultimate holding company of The taxpayer - HBTS. 6. During the year under assessment, assessee entered into international transactions with its Associated Enterprises as under:- S.No. Natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Name of the Company Total Op. Receipts INR (Crore) TC INR (Crore) OP OP/TC Percent i. Ace Software Exports Ltd. 5.4982366 5.14295 0.35529 6.91 ii. Allsec Technologies Ltd. 9.22565 7.18254 2.04311 28.45 iii. CMC Ltd. (Segmental) 3.14249 3.07562 0.6687 2.17 iv. CS Software Enterprises Ltd. 11.5678198 9.87798 1.68984 17.11 v. Cosmic Global 3.1114891 2.68165 0.42983 16.03 vi. Goldstone Teleservices Ltd. 5.0271 3.8966 1.1305 29.01 vii. Indus Networks Ltd. 3.36 3.22 0.14 4.35 viii. Tata Services Ltd. 41.0292 38.7366 2.2926 5.92 ix. Vishal Information Technologies Ltd. 25.64284 17.32306 8.31978 48.03 x. Nucleus Netsoft & GIS India Ltd. 6.0578376 4.1756645 1.8821731 45.07 xi. Ask Me Info Hub Ltd. (Shreejal) 4.71 4.5 0.21 4.67 xii. Transworks Information Services Ltd. 163.3007 136.6095 26.6912 19.54 xiii. Tricom India Ltd. 23.70 14.80 8.90 60.14 11. Ld. TPO on the basis of his own analysis calculated the PLI for 13 comparables at 22.11% as against PLI of assessee at 10% and proceeded to compute the ALP as under :- Average PLI (OP/TC) of the comparables = 22.11% Total cost of medical transcription servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iption services = 16,26,34,428/- Total cost of medical transcription services = 14,77,65,769/- Arm's length revenue of the transaction = 14,77,65,769/- *122.30% = 18,07,17,535/- Difference of arm's length revenue & Book value of revenue = 1,80,83,107/- Percentage of adjustment to arm's Revenue = 10.00% Proviso to Sec. 92C (2) is not attracted as percentage of adjustment to arm's length revenue is more than 5%. The international transactions reflected in form 3CEB pertaining to software services will be adjusted to bring it at arm's length price." 17. The taxpayer taken weighted average because during TP study, data was not available, but during TP proceedings when the data got available average was calculated on the basis of current year's data. Pursuant to the direction issued by ld. DRP, the TPO passed fresh TP order dated 25.04.2013 by computing the correct margin of the comparables as under :- Average PLI (OP/TC) of the comparables = 21.84% Total cost of medical transcription services = 13,58,21,892/- Arm's length revenue of the transaction = 13,58,21,892/- *121.84% = 16,54,85,393/- Book value of revenue = 14,94,04,081/- Difference of arm' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ishal is not a suitable comparable for benchmarking the international transaction entered into by the taxpayer with its AE for AY 2006-07. NUCLEUS NETSOFT & GIS INDIA LTD. (NUCLEUS) 25. The taxpayer sought to exclude Nucleus from the final set of comparables for benchmarking its international transaction with its AE on the grounds inter alia that Nucleus has undergone extra ordinary event of amalgamation and merger during the relevant financial year; that it is outsourcing most of its work; that Nucleus is a high profit earning company with margin of 36.63% and that calculation of PLI of Nucleus by the TPO is also erroneous as 45.07% as against correct margin by excluding leave and licence fee at 36.63% and relied upon the decisions of Ameriprise India (P.) Ltd. vs. DCIT - (2015) 67 SOT 136 (Delhi - Trib.), American Express (India) (P.) Ltd. vs. DCIT - (2016) 177 TTJ 33 (Delhi - Trib.) and HSBC Electronic Data Processing India Ltd. vs. ACIT in ITA No.1624/Hyd./2010 for AY 2006-07. 26. The taxpayer has brought on record the annual report of Nucleus, available at page 391, which shows that in accordance with the scheme of amalgamation as detailed in Director's report of assets an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o intangibles and that it incurs considerable amount on R&D of software. 30. Perusal of the relevant page of annual report, available at pages 689 & 690, the taxpayer has RPT to the tune of ₹ 14,48,17,710/- in FY 2005-06 as against total sale of ₹ 23,70,09,469/- which is 61.86%. Furthermore from the perusal of relevant page of the annual report available at page 60 of the compilation explains the functional profile of Tricom as, "Technology Absorption and Research & Development : Your company develops software to provide efficient Business Process Outsourcing services to its customers. The systems team of your company does continuous research and development for up gradation of the software in order to provide better services to its clientele. Your Company also develops software products to process the data required for providing BPO services to its customers. Your Company takes efforts to adapt latest technology and techniques, which helps it to be in competition." 31. Coordinate Bench of the Tribunal in ITO vs. Business Process Outsourcing India (P.) Ltd. - (2014) 61 SOT 83 (Bangalore - Trib.) examined the comparability of Tricom vis-avis the assessee company order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t round of litigation qua AY 2006-07 in ITA No.7175/Del/2010 order dated 30.06.2011 has applied the proviso to section 92C (2) in favour of the taxpayer by returning following findings :- "6. We have heard both the parties and gone through the material available on record. From the order of the ld. DRP we find that the assessee has raised objections on various points on which the ld. DRP has not passed speaking order. The objections raised by the assessee have been summarily rejected. 5 per cent standard deduction has been denied on the ground that proviso to section 92C(2) of the Act has been amended though the said Amendment has been made by Finance (No.2) Act, 2009 with effect from 1/10/2009. Prior to this amendment as per proviso to section 92C(2) the assessee was eligible for 5 per cent of adjustments. Since the amendment has been made effective from 1/10/2009 it is held that the assessee will be eligible for 5 per cent of adjustment while computing arms length price. The assessing officer is directed accordingly." 37. When the issue as to the allowability to the taxpayer for 5% of adjustment has already been decided in favour of the taxpayer in first round of litigation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsequently, Ground No.2.1 is determined in favour of the taxpayer. GROUND NO.2.2 IN ITA NO.4501/DEL/2013 41. AO is directed to examine the credit of taxes of ₹ 82,00,000/- already paid by the taxpayer in accordance with the demand raised by the AO vide notice dated 27.10.2010 for the year under assessment and allow the same after due verification of the facts. GROUND NO.2.3 IN ITA NO.4501/DEL/2013 42. The ld. AR for the taxpayer contended that this issue has already been decided in favour of the taxpayer in its own case for AY 2006-07 in ITA No.2136/Del/2014. Perusal of the order passed by the coordinate Bench in ITA No.2136/Del/2014 (supra) shows that identical issue was raised and has been decided in favour of the taxpayer by returning the following findings :- "11. In the present case, the original assessment order 27.10.2010 was set aside by the ITAT vide its order dated 30.06.2011 and nothing was brought on record to substantiate that the said order dated 30.06.2011 was challenged by the department. Therefore, the said order attained finality. In compliance to the order of the ITAT, the DRP directed the AO vide order dated 26.02.2013 to complete the assessment. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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