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TMI Blog2019 (5) TMI 622X X X X Extracts X X X X X X X X Extracts X X X X ..... essee has used companies with financial year for FY 2009 10 as a filter. Further according to the TPO the functional profile is also different and employee compensation is a percentage to total expenses is less than 25%. The learned dispute resolution panel also accepted the reasons recorded by the learned transfer pricing officer for its rejection. We have carefully considered the contention of the assessee on this aspect. In the transfer pricing study report submitted before the learned transfer pricing officer the assessee did not submit the financial for Year 2009 10 of this comparable company. Risk adjustment - the appellant undertakes minimum business risk as against comparable companies that are full-fledged risk entrepreneurs - TPO DRP has rejected the argument of the assessee for the reason that assessee failed to demonstrate before them that the risk profile of the assessee is making a difference in the margins earned by the assessee and the comparables - HELD THAT:- Before us also assessee could not demonstrate that how the risk profile is making a difference in the margin of the comparable companies as well as the assessee. Therefore we do not find any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greeing with and upholding the Ld. TPO s action of: 2.1 not appreciating that none of the conditions set out in section 920(3) of the Act are satisfied in the instant case; 2.2 disregarding the Arm s Length Price ( ALP ) as determined by the Appellant in the Transfer Pricing (TP ) documentation maintained as per section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ( Rules ) as well as fresh search; and in particular modifying/ rejecting the filters applied by the Appellant; 2.3 rejecting the comparability analysis undertaken by the Appellant in the TP documentation and conducted a fresh comparability analysis based on application of the following additional/ revised filters in determining the ALP: 2.3.1 exclusion of companies with export sales that are less than 75% of their total revenue/ sales as a comparability criterion; 2.3.2 exclusion of companies identified by the Appellant with employee cost less than 25% of their operating cost as a comparability criterion; 2.3.3 applying sales filter of ₹ 5 crore on for selecting comparable companies, thereby reje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... length price. The learned transfer pricing officer found that assessee has entered into a transaction of provision of data processing and software services to its associated enterprise amounting to ₹ 116698529/ which was benchmarked by the assessee adopting the Transactional Net Margin Method (TNMM) is most appropriate method (MAM) using the profit level indicator (PLI) of operating profit/total cost (OP/TC) selecting 7 comparable wherein the comparable mean PLI was 12.19 percent and assessee has earned the margin of 14.04 %, assessee submitted that its international transaction is carried out at arm s-length. The learned transfer pricing officer issued a show cause notice with respect to the several aspects of the benchmarking analysis of the assessee. After that he issued a show cause notice with respect to the selection of the comparables, use of current year data, the rejection of the certain filters et cetera. The learned TPO also referred to the cost allocation methodology adopted by the assessee for the login sale revenue of the assessee. Thereafter recording the objection of the assessee and considering reply of the assessee after giving the reasons for the rejection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort services to its associated enterprise. It is an IT support and software development and maintenance service provider to its associated enterprise whereas its associated enterprise are engaged in marketing and sales, quality control, invoicing on collection, client relationship, engagement control, execution of services and management support services for software development. Therefore according to the transfer pricing study report furnished by the assessee and not disputed by the learned assessing officer, Morningstar India, assessee provides, assistance in website and web application development of customers of associated enterprise, assistance in development and maintenance of STAR framework and Morningstar corporate website, assistance into tracking and data feeding, assistance in sales analysis and market research and assistance in quality testing of software developed by associated enterprises. Assessee is also involved in sale of online access of various databases of Morningstar group from its Mumbai office. It provided data processing and software services to its associated enterprise Morningstar incorporation of INR 58412756/ and to Corporate fundamental incorporation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort it is stated that the comparable company provides healthcare and receivable management services involving medical transcription, medical coding, billing and receivables management (collections). At page number 42, description of the medical transcription services have been provided with shows brief process of the medical transcription giving the process flowchart and in the end it is stated that medical transcription profession is considered very much a skilled work which can be done only after undergoing 6 to 8 months of rigorous training as it involves the identifying the generic name and trade name of the various drugs. That can be done only after reference to the pharmacology reference books which should always be a part of the library of a medical transcription profession. Further at page number 43 medical coding has also been explained by way of a flowchart. The company says that it has a sizeable number of certified coders which is assigning codes to diagnosis and procedures which help in financial reimbursement from insurance companies and government companies et cetera. It is further stated that medical coders are specialized in coding after thorough training program a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e side and buy-side of the financial transaction. The comparable company also provides strategy process consulting services helping clients devise solution to improve efficiency, reduce risk and meet regulatory and market demands. In the sales and marketing support division, the comparable company provides services in all elements of products and services marketing. It is further argued that honourable Delhi High Court in Ramp green solutions private limited vs. CIT it is held that it is engaged in the knowledge process outsourcing business and therefore it cannot be compared with simple ITeS service provider. 12. Before the learned transfer pricing officer assessee contested for exclusion of the above comparable stating that it is functionally dissimilar and a very large company. The learned transfer pricing officer rejected the contention of the assessee and stated that assessee itself has accepted that these companies into a BPO segment and therefore he rejected the contention of the assessee as the comparable company passed all the filters. The learned transfer pricing officer further stated that under the TNMM method the standard of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lgamation has taken place of PAN financial services India private limited with comparable company. Therefore it is stated that it should be excluded. 15. The learned transfer pricing officers considered the above objection of the assessee vide para number 15.5 page number 28 of his order. He held that as per the profit and loss account, significant accounting policies and notes on accounts of the above company, it is clear that this company is an ITeS company and fully comparable with the assessee. With respect to the presence of brand value the learned TPO noted that annual report of Infosys BPO does not mention anything regarding the brand deriving its profitability. He further stated that by spending a meager amount of revenue Infosys BPO could not have generated brand value as suggested by the taxpayer. The learned dispute resolution panel also upheld reasoning given by the learned transfer pricing officer. 16. We have carefully considered the annual report of Infosys BPO Ltd for financial 2009 10 placed at page number 213 296 of the paper book. Undoubtedly the comparable company belongs to Infosys group and therefore it has the support and bac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year 2008 09, and impugned financial year before us is financial year 2009 10 , hence it does not pertain to this year and therefore for this reason Infosys BPO cannot be excluded. 19. However for the reasons given by us above, we direct the learned TPO/AO to exclude the Infosys BPO Ltd from the comparability analysis for the reasons of having huge brand value. 20. The 4th comparable TCS E serve international Ltd challenged by the learned AR on functional dissimilarity stating that it is engaged in transaction processing and technical services like software testing, verification and validation of the software. It is further contended that segment information is not available. The AR further stated that there are extraordinary event in the form of acquisition by the comparable company from Citigroup of certain business. It was further stated that there is a payment for TATA brand equity, further the comparable became part of TATA group and has a huge scale and large client base which has enhanced its offerings and has also started servicing new clients during the year under review. Hence it was submitted that this company is not comparable with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has paid contribution for Tata brand. We have also perused the annual report of the comparable company which is placed at page number 372 507 of the paper book on careful analysis of the annual report it is found that in schedule N , Tata brand equity contribution of this comparable companies is ₹ 46065 thousands. Therefore we direct the learned transfer pricing officer to exclude the above comparable from the comparability analysis. 26. The next ground on the comparability analysis of the assessee is that one comparable selected by the assessee by the name of Mphasis Fincources Ltd has been rejected by the learned transfer pricing officer as it failed the employee cost filter. The learned authorised representative submitted that on perusal of the page number 13 of the annual report indicated that the total employee cost is INR 7 2651206 and the total expenditure incurred by the assessee is INR 1 63475456 and therefore the employee cost is only 44.44 percentage and thus meets the filter applied by the learned transfer pricing officer. He further stated that even if only salary cost is taken then also the employee cost to total cost comes to 40% approximately ..... X X X X Extracts X X X X X X X X Extracts X X X X
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