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TMI Blog2018 (8) TMI 658X X X X Extracts X X X X X X X X Extracts X X X X ..... e concluded to be at Arm's Length. 3. Observing that the search process as well as the choice of filters adopted by the assessee are not in conformity with the Transfer Pricing regulations, the TPO rejected the assessee's T.P study and conducted fresh analysis aggregating all the transactions under TNMM. Out of the 7 companies adopted by the assessee as comparables, the TPO accepted only one company i.e. e4e Healthcare Business Services Private Ltd as a comparable to the assessee. Thereafter, he proposed six other companies as comparables. The assessee raised its objections to all the comparables proposed by the TPO. However, the TPO rejected the assessee's objections and finally adopted the following companies as comparables and arrived at the mean margin of 22.30%. i) Acropetal Technologies Ltd (Seg.) ii) Microgenetics Ltd iii) Infosys BPO Ltd iv) Microland Ltd v) Capgemini Business Services (India) Ltd vi) e4e Healthcare Business Services Pvt. Ltd vii) Hartron Communications Ltd (Seg.) 4. Thereafter, he computed the ALP as under: Description Amount (in Rs.) Arm's Length Margin 22.30% Less: WCA 0.83% Adjusted Arm's Length Margin 21.47% Operating Cost (OC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ini Business services (India) Limited; b) Infosys BPO Limited and c) Hartron Communications Limited (Seg). 4. That on the facts and circumstances of the case, the TPO/AO/ DRP erred in accepting companies disregarding the comparability factors such as brand, giant size, scale of operations, having diversified operations, extra-ordinary events etc. 5. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred in accepting Hartron Communications Limited without appreciating that the auditor has qualified its report on account of noncompliance with Accounting Standard-15 regarding provision for retirement expenses, for which impact on profits is not ascertainable. Error in computation of margin of comparable companies 6. That on the facts and the circumstances of the case and in law, the TPO/AO/DRP erred in confirming the TPO's stand of treating the provision for bad and doubtful debts as non-operating expenses for the purpose of margin computation of comparable companies as selected by TPO. 7. That on the facts and the circumstances of the case and In law, the TPO/AO/DRP wed in confirming the TPO's stand of treating the bad debts writ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Adjustment for risk differences 17. That on the facts and circumstances of the case and in law, the AO/DRP erred in disregarding the risk profile of the Appellant vis-a-vis comparable companies selected by the TPO and not allowing risk adjustment as per the provisions of Rule 10B(1)(e) of the Rules. Arm's length range of 3% 18. That the AO/TPO be directed to re-work the profit margins of the Appellant vis-a-vis the resultant comparable companies and to allow the benefit of +/-3% range as provided in proviso to Section 92C(2) of the Act. 19. The Appellant craves, to consider each of the above grounds of appeal without prejudice to each other and craves leave to add, alter, delete or modify all or any of the above grounds of appeal". 6. At the time of hearing, the learned Counsel for the assessee submitted that though the assessee has raised 19 grounds of appeal, it does not wish to press grounds 13 to 19. These grounds are accordingly rejected as not pressed. Grounds 1 & 2 are general in nature and hence require no adjudication. 7. As regards grounds 3 to 5 are concerned against the comparability of the 3 companies mentioned therein, we find that the assessee is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which supports Infosys SPO to offer an integrated IT-BPO delivery model designed for 'one stop shop' solution model which helps managing the entire outsourcing operational chain of IT and process management services. Infosys BPO's Business Service Centre performs the back office functions for dispersed business units and locations. A pictorial presentation of back office functions is displayed below: Presence of brand That while considering Infosys BPO as a comparable company, due consideration should be given to the fact that Infosys spa possesses brand value which will tend to influence the pricing policy and thereby directly impacting the margins earned by Infosys spa. As seen from an extract of the Schedule 200200 (Selling and marketing expenses) to the Profit & Loss A/c of the Annual Report for the FY 2010-11 of Infosys spa, indicates that it is distinguished from the Assessee due to the presence of brand and its associated value. It is also submitted that Infosys spa has identified the presence of brand in its services/ products and has goodwill as a part of its Fixed Assets Schedule 100600. Following is an extract which provides evidence to the fact stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, because of its big brand value this company has to be excluded on the grounds of functional dissimilarity on FAR Analysis. Therefore, we direct the Assessing Officer/TPO to exclude this company." The Hon'ble ITAT has taken similar view in A.Y. 2008- 09 also. Having considered the submission, even though we are in agreement of the exclusion of the above company, due to turnover, however, respectfully following the decision of the Hon'ble ITAT on functional differences, including the influence of the brand value on the margins, we direct the A.O. to exclude the above company from the comparables". 18.5. In view of the detailed reasons given by the DRP in excluding the company, not only on the basis of the high turnover but also with reference to the brand value etc., we do not see any reason to interfere with the findings of the DRP. In fact the ground raised is not covering all the issues on which the DRP has rejected the above said company. In view of this, we do not find any merit in considering the Revenue's ground. Accordingly, ground 2 is rejected". 7.4 Respectfully following decision of Coordinate Bench, we direct the AO/TPO to exclude this company from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assets. Further, he submitted that the assessee has taken the objection about this company before the DRP, but the DRP has not discussed the same and has simply confirmed the order of the TPO. 10. Having regard to the rival contentions and the material on record, we find that before the TPO, the assessee had only taken an objection that the said company is functionally dissimilar. Before the DRP also, the assessee had also stated that in addition to the BPO, LPO and ITeS services, this company is also engaged in providing Intellectual Property Services in the nature of patent search, patent protection, and obtaining the trade-mark services, IP Management and further in software development services such as Web page Application, Standalone software Application, Distributed Applications, Desktop/Laptop Applications and Mobile Applications. The assessee had relied upon the Annual Report as well as Website information of the said company to submit as above and pleaded that no segmental information is available. However, the DRP has summarily rejected the assessee's contention and has confirmed the assessment order. Since the facts mentioned by the assessee about Hartron Commun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terial and the Annual Report of the company, we do not find it to be a comparable to the assessee. Therefore, the exclusion of the company from the list of comparable is confirmed. 16. As regards Informed Technologies Ltd is concerned, the TPO had rejected the same on the ground that it is functionally not comparable while the DRP stated that it fails income from ITeS more than 75% to total operating revenue filter. The learned Counsel for the assessee submitted that the said company is engaged in ITeS services as per the Annual Report and was accepted as a comparable in the assessee's own case for the A.Ys 2011-12 and 2012-13. With regard to the DRP's finding that it fails income from ITeS more than 75% to total operating revenue filter, he submitted that neither the TPO nor the assessee have made such comment or submission. The learned DR was also heard who relied on the orders of the authorities below. 17. On going through the material on record, particularly on page Nos. 1407, 1427 an 1477 of the Paper Book, we find that the said company is also providing ITeS and back office BOP services and as seen from Page 1425 in the column of segmental reporting, it is stated that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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