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TMI Blog2019 (4) TMI 869X X X X Extracts X X X X X X X X Extracts X X X X ..... on FAR Analysis. Therefore, we direct the Assessing Officer/TPO to exclude this company. TCS eServe Ltd. - following the turnover filter as well as taking note of the fact that it owns and possesses brand value and intangibles as compared to the assessee which does not own such assets, we direct that this company be excluded from the list of final comparables. Crystal Voxx Ltd - As relying on assessee's own case for AY 2013-14 we direct the TPO to verify the comparability of this company. Therefore, the matter is remitted to the file of the TPO for fresh analysis. This ground is allowed for statistical purposes. Adjustment for risk differences - HELD THAT:- As relying on HELLOSOFT INDIA (P.) LTD. [2013 (10) TMI 747 - ITAT HYDERABAD] we direct the AO/TPO to allow the risk adjustment in accordance with the Rule 10B(1)(e) considering the fact that assessee is a captive service provider to its AEs. Accordingly, ground raised by the assessee is allowed for statistical purposes. MAT credit disallowed the same while computing the tax liability for this AY - HELD THAT:- We direct the AO to verify the claim of the assessee and allow the MAT credit as per law. This ground is all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noted that assessee has aggregated the transactions and used Prowess and Capitaline data base in search for comparable companies. For the IT enabled services, after applying certain filters, the assessee has short-listed 5 companies, arithmetic mean PLI (OP/OC was computed at 17.51% as against its own PLI of 15.00%. Accordingly, the assessee stated that the international transactions are at arm s length. 2.3 As per the audited statement of accounts the financials of the assessee are as under: Description Amount (in Rs.) Operating revenue 24,13,05,252 Operating Cost 20,98,16,078 Operating profit 3,14,89,174 OP/OR (%) 13.05% OP/OC (%) 15.01% 2.5 With regard to economic analysis of the assessee, the TPO observed that the method of the search process suffers from defects which resulted in selection of inappropriate comparables and rejection of companies that are appropriate comparables. The TPO, therefore, rejected the TP document and an i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 144C(5) of the Act and read with order dated 29 January 2016 issued by Transfer Pricing Officer ('TPO') u/s 92CA(3) of the Act, is bad in law and void ab-initio. Transfer Pricing General 2. That on the facts and circumstances of the case and in law, the AO/DRP erred in confirming transfer pricing adjustment of ₹ 1,69,15,395 on account of provision of Information Technology enabled Services ('ITES') by the Appellant to its Associated Enterprises ('AEs'). 3. That on the facts and circumstances of the case and in law, the AO/DRP erred in rejecting transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 ('Rules') and undertaking a fresh economic analysis during the course of assessment proceedings and thereby making an adjustment of ₹ 1,69,15,395 to the international transactions. Selection of uncomparable companies 4. That on the facts and the circumstances of the case and in law, the AO/ DRP erred in accepting the following comparable companies as selected by the TPO: a) Eclerx Services Limited; b) Infosys BPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... add, alter, delete or modify all or any of the above grounds of appeal. 3.2 Out of the said grounds, the assessee pressed only ground Nos. 4, 6, 9 and 11 of the grounds of appeal. 4. In ground No. 4, the assessee prays to exclude four companies as comparables, however, at the time of hearing, he pressed only the following two companies to be excluded from the list of comparables: i) Infosys BPO ltd. ii) TCS e-Serve Ltd. 4.1 As regards Infosys BPO Ltd., Ld. AR submitted that this company cannot be a comparable to the assessee company as it has functional dissimilarity as well as extraordinary events took place during the year and, further, it has high turnover of ₹ 1,312 crores. He relied on various cases including the case of Hyundai Motor India Engg. Pvt. Ltd. Vs. DCIT, Hyderabad in ITA No. 87/Hyd/2017 for AY 2012-13. 4.2 The ld. DR, on the other hand, filed written submissions, wherein, it is stated as under: 4. Regarding impact of turnover on the profitability of a company, the TPO conducted an exhaustive analysis at page 43 of his order, wherein he compared the operating revenues of Infosys Technologies Ltd from 1997 to 2012 and demonstrated that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver of ₹ 1016 crores of the Infosys. We are also of the view that other contentions with regard to the brand value and brand building exercise, having huge asset base, can be considered to arrive at the conclusion that Infosys BPO is functionally not similar to that of assessee. Infosys BPO stands on its own as an exclusive BPO of the Infosys Technologies and in earlier years, generally Infosys BPO is excluded in many of the cases. Considering these aspects, we are of the opinion that even though the profits of the Infosys BPO Ltd. is reasonable and no super profits are earned, 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. Respectfully, following the same, we direct the AO to exclude the said company as comparable. 4.4 As regards TCS eServe Ltd., Ld. AR submitted that this company cannot be a comparable to the assessee company as it has functional dissimilarity as well as diversified business and has high turnover of ₹ 1578 crores. He relied on various cases including the case of Hyundai Motor India Engg. Pvt. Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n such assets, we direct that this company be excluded from the list of final comparables. Accordingly, assessee's grounds of appeal No.6 is partly allowed. Respectfully, following the said decision, we direct the AO/TPO to exclude the said company as comparable. 5. As regards ground No. 6 regarding rejection of comparable companies, the TPO observed that the company Crystal Voxx Ltd., failed the service income filter at entity level and has persistent losses at segment level and hence not considered. The DRP also upheld the action of the TPO. 5.1 Before us, the ld. AR submitted that the said company is functionally similar and satisfies all the filters applied by the TPO. He relied on the following cases: 1. M/s Harsco India Services Pvt. Vs. DCIT, ITA No. 2176/Hyd/2017 for AY 2013-14 2.M/s Hyundia Motor India Engg. Pvt. Ltd. Vs. DcIT, ITA No. 87/Hyd/2017. 5.2 On the other hand, ld. DR in his written submission stated that the on the demand to include Crystal Voxx Ltd., it is humbly submitted that the said company failed service income filter at entity level and fails persistent loss filter at segmental level as mentioned by TPO and the same cannot b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Tribunal have also taken a divergent view on this issue. The Income-tax Appellate Tribunal, Mumbai Bench in the case of Simontech (supra) has held that no separate adjustment is required on account of risk and functional difference, the Income-tax Appellate Tribunal Delhi Bench in the case of Sony India (P.) Ltd. (supra) has held that deduction on account of ownership of intangibles, risk factors can be allowed. In aforesaid view of the matter, we are inclined to accept the view favorable to the assessee. We therefore uphold the direction of the CIT(A) in this regard in allowing the benefit of risk adjustments at 1%. Accordingly, the ground raised by the department is dismissed. Following the said decision, we direct the AO/TPO to allow the risk adjustment in accordance with the Rule 10B(1)(e) considering the fact that assessee is a captive service provider to its AEs. Accordingly, ground raised by the assessee is allowed for statistical purposes. 7. As regards ground No. 11 regarding MAT credit, ld. AR submitted that assessee has MAT credit to the extent of ₹ 40,23,521/- and AO has not allowed the same while computing the tax liability for this AY. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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