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TMI Blog2020 (2) TMI 972X X X X Extracts X X X X X X X X Extracts X X X X ..... ndent : Shri Uodhalraj Singh ( Sr.DR) ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. These two appeal by assessee are directed against two separate assessment order under section 143(3) rws 144C (13) dated 21.01.2015 26.11.2016, passed in pursuance of direction of Dispute Resolution Panel-II (DRP), Mumbai DRP-IV for assessment year 2010-11 2011-12 respectively. In both the appeals, the assessee has raised certain common grounds of appeal, therefore, both the appeal were clubbed, heard and are decided by a common order. For appreciation of facts, the appeal for A.Y. 2010-11 is treated as lead case. 2. Brief facts of the case are that the assessee is a wholly owned subsidiary of Swiss Reinsurance Company Ltd., Zurich (SRZ) Switzerland and is engaged in providing consultancy/ information technology enabled services (ITeS) to its foreign Associate Enterprises (AE). The assessee-company filed its return of income for Assessment Year 2010-11 on 29.03.2011 declaring total income at ₹ 7,87,57,222/-. Along with the return of income, the assessee furnished report under Form 3CEB, reporting international transaction with its AE. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Arms Length Price (ALP). 5. During the proceeding, the TPO noted that the assessee has not considered other income as operating item although they are on non-operating nature as seen in the entries in the Profit Loss A/c, which include interest on deposit, rental income, profit of sale of its assets, reversal of provision of doubtful debt, liabilities no longer required/written back and others and accordingly TPO computed assessee s PLI at 8.61% by excluding other income. 6. On benchmarking the TPO accepted six comparable and further added three additional comparable. The TPO after including three additional comparable worked out Arithmetic mean of Profit Level Indicator (PLI) of 29.55% against the margin of comparable company and arrived at margin of assessee s PLI at 8.61% by excluding other income in the following manner: Sr.No. Name of Company OP/OC 1 Caliber Point Business Solutions Ltd. 21.16% 2 Crossdomain Solutions Pvt. Ltd. NA 3 I C R A Techno Analytics Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om operating income of the comparable to maintain the consistency. On receipt of direction of DRP, the Assessing Officer passed the final assessment order by making adjustment of ALP of ₹ 6,84,85,849/-. Further, aggrieved by the additions made in pursuance of direction of DRP, in final assessment order under section 143(3) rws 144C (13) dated 21.01.2015, the assessee has filed present appeal before the Tribunal. 10. The assessee has raised following grounds of appeal: Ground 1 - Transfer Pricing Adjustment of ₹ 6,84,85,849 relating to provision of support services 1.1 On the facts and in the circumstances of the case, the learned Transfer Pricing Officer ('TPO') and the learned Assessing Officer ('AO') under the directions of the Hon'ble Dispute Resolution Panel ('DRP') erred on facts and in law in making an addition of ₹ 6,84,85,849 to the international transaction of the Appellant based on the provisions of Chapter X of the Income-tax Act, 1961 ('the Act'). 1.2 The learned AOITPO under the directions of the Hon'ble DRP erred on facts and in law in disregarding the various submissions made by the Appellant w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by excluding income in the nature of operating income from margin computation. 1.5 The learned AO I TPO under the directions of the Hon'ble DRP erred on facts and in law in erroneously stating that the Appellant has considered interest on deposits, rental income and profit on sale of fixed assets as operating income inspite of the fact that these expenses were never considered by the Appellant in its margin computation. 1.6 The learned AO I TPO under the directions of the Hon'ble DRP erred on facts and in law in adopting an inconsistent approach for computation of margins of the Appellant and comparable considering other income as nonoperating income in case of the Appellant and same as operating income in case of comparable companies. 1.7 The learned AO I TPO under the directions of the Hon'ble DRP erred on facts and In law in not providing adequate opportunity to the Appellant to verify its margin computed by the learned TPO. 1.8 The learned AO/TPO under the directions of the Hon'ble DRP erred on facts and in law in requiring financial data of only the current year (i.e. FY 2009-10) of the comparable companies to be used for benchmarking the Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 234B of the Act in accordance with the law. 4.3 The learned AO has erred in levying interest under Section 234C of the Act of ₹ 806,573 on the assessed income. Accordingly, the Appellant prays that the AO be directed to grant consequential relief in computing interest under Section 234C of the Act in accordance with the law. The Appellant craves leave to add to, alter, amend or withdraw all or any of the grounds of appeal herein above and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law. Ground No.5: Additional Grounds of Appeal filed with the ITAT by the Appellant vide submission dated 5 November 2015. On the facts and in the circumstances of the case, and in law, Infosys BPO Ltd. ought not to be retained in the set of comparable to determine the arm s length price of international transaction entered into by the assessee. 11. We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. We have noted that the assessee has raised additional gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee on functional comparability. It is submitted that Infosys BPO is a giant company with different risk profile and nature of services, has brand value and owns IPs unlike the assessee who broadly provides back office support service and hence not comparable to the assessee. The ld. AR of the assessee submits that Tribunal in case of Stream International Services (P.) Ltd. vs. ADIT (141 ITD 492 Bom-Trib), excluded this comparable by taking view that Infosys BPO is a market leader and a giant company with a different risk profile and nature of service, has brand value and hence not comparable to the assessee due to huge difference in the size and scale of the company. The TPO in A.Y. 2009-10 himself rejected this comparable on account of Multiple Functional Segments with huge allocated items. In support of his submission, the ld. AR relied upon the decision of Tribunal in Stream International Services (P.) Ltd. vs. ADIT, Hon ble Bombay High Court in CIT vs. Pentair Water India (P.) Ltd. (381 ITR 216) and Hon ble Delhi High Court in PCIT vs. Sanvih Info Group Pvt. Ltd. (ITA No. 420 of 2019 dated 16.05.2019). 15. For exclusion of Acropetal Technologies Limited , the ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s submission, the ld. AR submits that Hon ble Bombay High Court in Goldman Sachs (India) Securities Pvt. Ltd. vs. CIT in ITA No. 2222/2013, wherein it was held that a company which had losses in two consecutive year was held not to be a persistent loss making company and was accepted as a comparable. The ld. AR further submits that TPO himself accepted Datamatics as a comparable in A.Y. 2009-10, accordingly by following the aforesaid decision of jurisdictional High Court, in the light of the fact that Datamatics to be included as a comparable and cannot be rejected, merely because it has incurred losses. The ld. AR also relied upon the decision of Tribunal TPG Capital India (P.) Ltd. vs. DCIT (ITA No. 7594/Mum/2014). 17. On the other hand, the ld. DR for the revenue supported the order of Assessing Officer/TPO/DRP. The ld. DR further submits that TPO while determining the ALP of the international transaction referred for computation of ALP has given detailed analysis on inclusion of Infosys BPO Ltd., Accentia Technology, Acropetal eClerx being functionally comparable with the assessee. Further, Datamatics Financial Services was excluded on functional dissimilarities. The DR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KPO services there may be some amount of BPO activity, KPO services are essentially characterized by performance of research, domain based analysis and domain based expertise. In a KPO service, depth of knowledge and experience and judgement factor plays an important role while in the case of BPO, it is concerned more with size, volume and efficiency. Highlighting these aspects the assessee has submitted Eclerx should not be considered as comparable to the assessee. The DRP in this regard has rejected the assessee s contention by observing as under: While examining the functional analysis performed by the assessee in its study report, it has already been pointed out that the assessee's activity is more in the nature of analytics and not in the nature of routine BPO activity. As a matter of fact, it is explained at para 4.1.1.3 of the TP study report that the assessee helps the AE in evaluating the probable maximum loss including inspection of the location, construction, fire fighting ability etc of the property which is subject matter of insurance. The information that is provided by the assessee also assist the AE in suggesting suitable modification / improvement in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied on the orders of the authorities below. Upon careful consideration, we find that the ITAT has considered this issue in the case of M/s. Fractal Analytics Private Limited (supra), wherein the tribunal has held as under: 72, Upon careful consideration, we note that assessee is engaged in providing analytical solutions to its AEs to lower the cost of customer acquisition, to improve brand performances, improve multi-dimensional reporting, understand consumer behavior, and many other analytical services. As against the above, we find that Eclerx Services is engaged into diverse range of activities which includes financial services and sales and marketing support services. Its functions primarily are consultancy, business analysis and solution testing. Thus, M/s.Eclerx Services is engaged into various functions and segments. Its segmental data are not available. In following case laws it has been held that the company should he rejected as comparable as its segmental data are not available:- (i) M/s.Capital IQ Information Systems (India) Pvt. Ltd. v. ACIT [ITA No.l24/Hyd/2014] (ii) M/s. Excellence Data Research Pvt. Ltd v. ITO [ITA No. 159/Hyd/2014] 13. Furthermore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... excluding Eclerx Services as a comparable, and making further-computation as per law. In view of the above precedent, we allow the grievance of the assessee and hold that this comparable is functionally different. c) Accentia Technologies Ltd.: In this regard, the assessee's objection against this comparable selection is that it is engaged in providing software services and since the TPO himself has rejected other cases that are engaged in software business, this case also should be excluded on the principle of consistency. The assessee has also referred to the fact that this company is concentrating on health care, receivable cycle management, which are not similar to the assessee's activities. The DRP in this regard rejected the assessee s contention and gave the following directions: The assessee contests on the ground that segmental data are not available. The support services provided by the company are classified under BPO/ITES. It is also seen from the Annual Report of the company that income from ITES is 78.72% of total operational revenue, further, in case of M/s Willis Processing Services (india) Pvt Ltd in ITA No.4547/Mum/2012 in Para 18, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent comparability analysis. 20. Considering the decision of Tribunal in assessee s own case for A.Y. 2009- 10, wherein the Tribunal excluded the eClerx and Accentia from final set of comparable for determining the ALP of similar international transaction of assessee with its AE. No contrary facts or law is brought to our notice to take other view. Thus, respectfully following the decision of co-ordinate bench for AY 2009-10, we direct the AO/TPO to exclude Accentia Technology and eClerx from final set of comparable. 21. So far as exclusion of Infosys BPO is concerned, we have seen that the assessee itself included Infosys BPO Ltd. in its TP study and furnished related data about this comparable. For exclusion of this comparable, the assessee raised additional ground of appeal, which we have admitted for adjudication. Before us, the ld. AR of the assessee vehemently submitted that the assessee inadvertently included as a comparable by the assessee itself in its Transfer Pricing Study, and there is no estoppel in law to exclude the comparable, if the same is not comparable with the assessee on functional comparability. Infosys BPO is a giant company with different risk prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e IT segment of Acropetal as ITeS segment which is factually incorrect. It was also argued that there are three segments of this comparables; namely, (i) Engineering Design Service, (ii) Information Technology Services ( IT Segment ) and (iii) Healthcare. For the concerned year three segments of Acropetal are provided at Page 23 of its Annual Report and that IT segment of Acropetal cannot be compared to the assessee company, which is undisputedly an ITeS company. The TPO while including Acropetal Technology perused the page no.24 of its Annual Report and concluded that this company operates in two segments namely Engineering Design segment and ITeS. The ITeS segmental results were considered. The objection of assessee about the high turnover, the ld. TOP concluded that assessee failed to demonstrate as to in what way turnover impact the profitability of the comparable company. Before the ld. DRP, the assessee objected for inclusion of this comparable. The DRP concluded that the TPO has considered only ITeS segment as comparable. There is nothing in the annual report to suggest that ITeS segment of this comparable has exported any software product. There is nothing to indicate that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly persistent loss making unit cannot be said as comparable. Thus, considering the fact that this company was accepted as comparable by TPO himself in AY 2009-10, thus, we direct the AO/TPO to include this comparable in final set of comparable. However, the assessee is directed to provide segmental data for ITeS services of Datamatics. 26. In view of the aforesaid discussion and following the decisions, we direct the AO/TPO to exclude Infosys BPO Ltd., Accentia Technology Ltd., Acropetal Technology Ltd. and Eclerx Services Ltd. and include Datamatics Financial Services Ltd. in the final set of comparable and recompute the ALP of ITeS support services with its AE. The AO/TPO is further directed to follow the direction of DRP on objection no.1.6 1.7 while re-computing the ALP. In the result, this ground of appeal is partly allowed. 27. Ground No.2 relates to initiation of penalty under section 271(1)(c). This ground of appeal is premature, therefore, needs no adjudication. 28. Ground No.3 relates to Short Credit of TDS. Considering the nature of grounds of appeal, we direct the AO to verify the facts and grant appropriate relief to the assessee. 29. Ground No.4 rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31.3.2 The learned TPO/AO/DRP has erred in including Accentia Technologies Ltd ( Accentia ) on the ground that Accentia is engaged in ITES, even though Accentia is not functionally comparable of the Appellant and has undergone extraordinary event during the year under consideration and hence should be rejected. 31.3.3 The Learned TPO/AO/DRP has erred in including Acropetal Technologies Ltd. on the factually incorrect ground that it operates in two segments namely engineering design and ITES and the ITES segmental results were considered to be comparable to the assessee. However, it is evident from the Annual Report of the company that its segments are Engineering Design., IT ( not ITeS) and Health Care Services. Moreover, the TPO and DRP erred in not considering that Acropetal is engaged in development of software products and hence not comparable to the Appellant. 1.4 The learned AO / TPO under the directions of the Hon'ble DRP has determined the arm's length price of the comparables in violation of Sections 92C(1) and 92C(2) by resorting to cherry picking of comparables without appreciating the facts of the Assessee's case and without understanding the functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing out of reliefs from this appeal. 4.2 The learned AO has erred in levying interest under Section 2348 of the Act of ₹ 8,475,488. Accordingly, the Appellant prays that the AO be directed to grant consequential relief in computing interest under Section 234B of the Act in accordance with the law. 4.3 The learned AO has erred in levying interest under Section 234C of the Act of ₹ 1,008,431 on the assessed income. Accordingly, the Appellant prays that the AO be directed to grant consequential relief in computing interest under Section 234C of the Act in accordance with the law. The Appellant craves leave to add to, alter, amend or withdraw all or any of the grounds of appeal herein above and to submit such statements, documents and papers as may be considered necessary either at or before the hearing of this appeal as per law. 32. Ground No.1 relates to TP Adjustment on account of provision of support services to its AE. We have noted that this ground of appeal is identical to the ground No.1 in assessee s appeal for AY 2010-11. 33. The ld. AR of the assessee while making submission confined his submissions only for exclusion of Eclerx from final set of co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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