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TMI Blog2017 (8) TMI 1433X X X X Extracts X X X X X X X X Extracts X X X X ..... r AY 2010-11 on 11/10/2010 admitting total income of Rs. 33,65,95,390/-. The case was selected for scrutiny and after examining all the details and information submitted by the assessee, the AO completed the assessment by making the following additions and assessed the income at Rs. 88,36,13,747/-. 1. Accrued income shown as unmatured advances in the Balance Sheet of Rs. 51,89,30,155/-. 2. Arm's length Price adjustment u/s 92CA of Rs. 1,49,51,346/- 3. Disallowance of expenditure included in employees cost Rs. 1,43,70,180/-. 3. Aggrieved with the above order, the assessee preferred an appeal before the CIT(A) against the additions in respect of accrued income shown as unmatured advances and Arm's length price adjustment u/s 92CA of the Act. 4. As regards the issue of taxing of accrued income shown as unmatured advances in the balance sheet, the CIT(A) after considering the submissions of the assessee and relying on the decision of the coordinate bench of this Tribunal in assessee's own case for the Previous Years, deleted the addition made by the AO. 5. As regards the addition in respect of international transactions, the CIT(A) gave partial relief to the assessee. 6. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ults in distortion of true profits. 4. Whatever be the method followed, recognition of revenue has to be in consonance with the method of accounting so followed vis-à-vis the nature and character of the amount accrued or received and the year of such accrual or receipt [State Bank of Travancore 158 ITR 102 (SC)]. The Assessing Officer has the power to adopt the correct method of valuation of closing stock instead of wrong method adopted by the assessee for a long period. Method of stock valuation followed should not only be consistent but should also be correct. British Paints India Limited 188 ITR 44 (SC). Accordingly, the unmatured income of Rs. 51,89,30,155/- is treated as assessee's income and accordingly added back to the income returned." 8. The CIT(A) following the decision of the ITAT in assessee's own case, deleted the addition made by the AO. 9. Aggrieved, the revenue is in appeal before us. 10. Before us, the ld. DR has conceded that the issue in dispute is squarely covered by the decision of ITAT in assessee's own case, while, the ld. AR has relied on the order of the CIT(A). 11. Considered the rival submissions and perused the material facts on record. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. On the other hand, the learned counsel supported the order of the CIT(A). On due consideration of the matter, we uphold the order of the CIT(A). Whether a particular Accounting Standard has been notified or not is not material. What is to be seen is whether the assessee has followed a recognized method of accounting or not. If method followed by the assessee is such whereby correct income cannot be deduced, then only the assessing officer has the authority to adopt a reasonable basis to determine the total income. In the instant case,. It cannot be disputed that the assessee has followed a recognized method of accounting and hence, there is no question of adding any further amount to the total income. There being no infirmity in the order of the CIT(A), we uphold the same." Therefore, we do not find any infirmity in the order of the CIT(A) in deleting the addition made by the AO following the decision of the ITAT and, accordingly, we uphold the order of the CIT(A) and dismiss the ground raised by the revenue in its appeal. 11.1 As the issue in the AY under consideration is materially identical to that of AY 2007-08, following the decision of the ITAT, we uphold the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c analysis, however, he summarized it as under: Sr.No. Nature of international transaction Amount of transaction MAM PLI Margin of taxpayer Margin of comparables 1 Provision of ITES 5,76,83,907 CPM OP/OC 15 15.5 2 Commission receivable 65,13,815 CUP NA 10 3 3 Commission payable 1,46,82,215 CUP NA 10 3 4 Payment of royalty 1,47,51,888 NA NA NA NA 5 Payment of Sof twareCharges 2,31,30,276 NA NA NA NA 6 Reimbursement of expenses paid 4,10,15,063 NA NA NA NA 7 Reimbursement of expenses received 1,29,64,811 NA NA NA NA 8 Receipt of video Conference equipment 27,25,896 NA NA NA NA 12.2 The TPO has observed that the taxpayer has carried out the economic analysis in search for comparables at pages 30 to 35 of the T.P. documentation. The taxpayer has used Capitaline data base in search for comparable companies. With regard to the transaction relating o provision of ITES, after applying certain filters, the taxpayer using CPM as MAM has short-listed 18 campa rabies with arithmetic mean PLI (OP/OC) was computed at 15.5% as against the PLI of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d cases for arriving at a final comparable set and the remarks of the TPO were as under: 12.7 Comparables proposed by the TPO and accepted by the assessee are as under: 1. Acropetal Technologies Ltd. (Seg.) 2. Axis IT & T Ltd. 3. Cosmic Global Ltd. 4. Jeevan Softech Ltd. (Seg.) 5. Microgenetics Systems Ltd. 6. Crossdomain solutions Pvt. Ltd. 12.8 Comparables proposed by the TPO and objected by the assessee, are as under: 1. Accentia Technologies Ltd. 2. Eclerx Services Ltd. 3. Infosys BPO Ltd. 4. TCS e-Serve International ltd. 5. TCS e-Serve Ltd. 12.9 The following final comparables selected by the TPO: S.No. Name of the company OP/OC 1 . Accential Technologies Ltd. 43.62 2. Acropetal Technologies Ltd. (Seg.) 10.12 3. Axis IT & T Ltd. 11.89 4. Cosmic Global Ltd. 16.59 5. Eclerx Services Ltd. 42.17 6. Infosys BPO Ltd. 31.63 7. TCS e-Service International Ltd. 51.51 8. TCS e-Serve Ltd. 67.58 9. Jeevan Softech Ltd. (Seg.) 8.04 10. Microgenetics Systems Ltd. 6.60 11. Crossdomain Solutions Pvt. Ltd. 17.13 Total 306.88 Average 27.90 12.10 After applying the averag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd., Singapore 1,17,89,200 17,68,380 1,35,57,580. Monster Technologies Malaysi 38,94,088 5,84,113 44,78,201 13.2 The assessee company has contended that it is earning sales commission and paying sales commission in respect of sale of data banks of the Associated Enterprises and that it is charging and paying a sales commission at 10%. The details were also provided to the TPO as detailed below: Associated Enterprise Nature of Transaction Amount (Rs.) E-Career (Beijing Ltd.) Commission received 7,360 E-Career (Beijing Ltd.) Commission paid 1,32,090 Job Korea Co.Ltd. Commission received 25,917 Monster Jobs Mexico S.de R.L.De.CV Commission received 10,325 Monster Worldwide Canada Commission received 1,51,355 Monster Worldwide Canada Commission paid 3,55,919 Monster Worldwide Inc.USA Commission received 2,28,050 Monster Worldwide Inc.USA Commission paid 1,08,87,680 Monster Worldwide Ltd., UK Commission received 50,61,270 Monster WorldwideLtd., UK Commission paid 30,25,204 Monster.Com HK Ltd. Commission received 2,32,647 Monster.Com HK Ltd. Commission paid 1,15,107 Monster SG Pte Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said reimbursement in the earlier years were not subjected to mark-Up, The Transfer pricing Officer has added, Rs. 30,75,456/- out of Brand Royalty and Rs. 41,06,436/- out of Software Charges as relating to prior period. While doing this, the Transfer Pricing Officer has ignored that the Parent Company raised the bill for the first time this year for Royalty and Software Charges. Therefore, the Transfer Pricing Officer should have seen that these expenses relate to the current year and not to prior period. 14. After considering the submissions of the assessee, the CIT(A) confirmed the addition made by the AO by observing as under: "5.3 I have carefully considered the facts of the case, assessment order and submissions of the assessee. In this case the AO has taken several comparisons and adjustments after comparing arm's length price and several companies made the additions. The assessee mainly contested that the assessee company receiving sales commission and paying sales commission in respect of sale of data banks of the Associated Enterprises and charging and also paying sales commission at 10%. The Transfer Pricing Officer in the final order recommended Cost + 27.90% as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, I am in agreement with the Assessing Officer with regard to adopting the mark up of 27.90% and completing the assessment based on the Transfer Pricing Officer's order. Hence, the addition made by the Assessing Officer is confirmed." 15. Aggrieved by the order of the CIT(A), the assessee is in appeal before us and submitted that the issues in dispute are squarely covered by the decision of the ITAT in assessee's own case for AYs 2007-08 to 2009-10 in ITA Nos. 1762/H/11 and others, vide order dated 31/03/2017. 16. Ld. DR neither controverted the submissions of the ld. AR nor brought any contrary decision in this regard. 17. Considered the rival submissions and perused the material facts on record. As submitted by the assessee, the issues in dispute are squarely covered by the decision of the ITAT in assessee's own case for AYs 2007-08 to 2009-10 (supra) wherein the coordinate bench has held as under: "36. Considered the rival submissions and perused the material facts on record. As submitted by the ld. AR of the assessee, the six comparables objected by the assessee, have been excluded by the coordinate benches of this Tribunal in the aforesaid cases. For the sake o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g super profits. It was further submitted that this company is not only in software development but also in Geospatial Services, which are highly technical. It also involves in consulting activity. It was the contention that this company was analysed by the coordinate Bench of the Tribunal at Delhi in the case of M/s. Mercer Consulting (India) Ltd. V/s DCIT (vide order dated 6th June, 2014 in ITA No.966/Del/2014), wherein this company was excluded in that case. Learned counsel for assessee relied upon the findings of the Tribunal vide paras 14.2 and 14.3, in that case, which read as follows "14.2. We have heard the rival submissions and perused the rival materials on record. It has been noticed supra that assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective clients. When we consider the nature of services provided by Genesys International Corporation Ltd., it comes to the forefront that they are providing full range of geospatial services to its customers. In simple terms, geospatial services means the services relating to the relative position of things ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yroll'. On juxtaposition examination of these two sets of services, we find that there is a vast difference which make one quite distinct from the other. In view of such functional incomparability between assessee and Genesys, we hold that this company cannot be treated as comparable. We, therefore, direct to exclude this case from the list of comparables." 17.1. On careful consideration of the matter, respectfully following the above decision of the coordinate Bench, we are also of the opinion that there is vast difference between the functions of the above company and that of assessee. This company as such, cannot be treated as comparable on FAR analysis. We therefore, direct the Assessing Officer/TPO to exclude this company. (3) Eclerx Services Ltd. 18. The objection of assessee to this comparable is that this company is functionally dissimilar. It is in the business of consultancy and advisory service and provides only analytical data. It is also involved in quality monitoring. It is the stand of the assessee that this company offers solutions that include data analytics, operations management, audits and reconciliation and therefore has to be classified as high end ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This does not appear to us to be a valid reason for eliminating this case from the list of comparables. On going through the Annual accounts of Cosmic Global Limited, a copy of which has been placed on record, we find that its total revenue from operations are at Rs. 7.37 crore divided into three segments, namely, Medical transcription and consultancy services at Rs. 9.90 lacs, Translation charges at Rs. 6.99 crore and Accounts BPO at Rs. 27.76 lac. The ld. AR has made out a case that outsourcing activity carried out by this company constitutes 57% of total expenses. The reason for which we are not agreeable with the ld. AR is that we have to examine the revenue of this case only from Accounts BPO segment and not on the entity level, being also from Medical transcription and Translation charges. When we are examining the results of this company from the Accounts BPO segment alone, there is no need to examine the position under other segments. The entire outsourcing is confined to Translation charges paid at Rs. 3.00 crore, which is strictly inthe realm of the Translation segment, revenues from which are to the tune of Rs. 6.99 crore. If this segment of Translation is not under con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved in engineering design services and has products also, which makes it functionally not comparable. Even at the segmental level, it provides engineering design services, which was considered as high end by the coordinate bench of the Tribunal in the case of Hyundai Motors India Engineering (supra) in earlier year. Therefore, we are of the opinion that this company cannot be selected as a comparable. We accordingly direct the Assessing Officer/TPO to exclude this company. (6) Accentia Technologies Limited. 21. This company was objected to by assessee on the reason of super profits as well as extra-ordinary events. It was submitted that acquisition of Oak Technologies & Trans Services has impact on the profits of the company and has taken inorganic growth as strategy to increase the profits because of the peculiar economic circumstances and brand value. The same in these circumstances cannot be selected. It was submitted that assessee was in medical transcription services. 21.1. The Departmental Representative however, objected to the pleas of assessee stating that the extraordinary events occurred in earlier year and therefore, the same cannot be considered as having any imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s cover end to end payroll, retrials, reimbursement, tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000. " "Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and tum-a round-time for business critical processes. " Source: http:/ www.cross-domain.com As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service provider. III. 1. We are of the view that in the absence of any reasons given to the contrary either by the TPO or the DRP for regarding this c9mpany as a comparable, this company should be excluded from the list of comparables, accepting the plea of the Assessee. Similar view was also taken in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In view of the above, we direct the AO/TPO to exclude the aforesaid companies from the list of comparables and recompute the ALP afresh. Accordingly, the grounds raised by the assessee are allowed. 18. As regards ground Nos. 11 & 12 regarding mark up of 27.90% on the reimbursement of expenses received of Rs. 12,96,481/-, this issue is squarely covered by the decision of ITAT Hyderabad in the case of Mylan Laboratories Ltd., (Formerly Matrix Laboratories Ltd.) in ITA No. 66/Hyd/2013 for AY 2008-09 vide order dated 01/01/2014, wherein the coordinate bench has held as under: 31. After considering the rival contentions, we are of the opinion that this issue required to be examined by the Assessing Officer/TPO in detail whether the said amount claimed to have received by the assessee as reimbursement expenses are indeed reimbursement or not. In case of reimbursement at cost of the expenditure incurred on behalf of the AEs and has not formed part of the expenditure claimed as operating cost of the assessee then, the reimbursement should not be considered as part of assessee's sales. The amounts should be excluded in computing the operating profits. Since the Assessing Officer has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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