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TMI Blog2020 (8) TMI 129X X X X Extracts X X X X X X X X Extracts X X X X ..... d as a valid comparable to the Information Technology Enabled Services segment of the Appellant, even though the company passes all the quantitative filters applied by the Ld. TPO, and is functionally comparable to the Information Technology Enabled Services segment of the Appellant. 4. On the facts and in law, the Ld. TPO/AO has erred in selecting companies (viz. TCS E- Serve International Ltd., Infosys BPO Limited, Capgemini Business Services (India) Pvt. Ltd., Tech Mahindra Limited and Hartron Communications Limited), which are not comparable to the Information Technology Enabled Services segment of the Appellant, on account of various quantitative/ qualitative filters, acceptable to the Ld. TPO himself. Further, the Ld. CIT(A) has erred in not adjudicating on the action / approach of the Ld. TPO, w.r.t. selection of the aforesaid companies. 5. That the Ld. CIT(A) has erred in facts and in law, in confirming disallowance made by the Ld. AO amounting to INR 3,50,08,872/- incurred in relation to rebates / discounts paid to the holding company of the Appellant without appreciating the fact that these were in the nature of sale and promotional expenses. 6. That the Ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by applying transactional net margin method (TNMM), which is stated to be the most appropriate method in the facts and circumstances of the case. The operating profit to total cost (OP/TC) ratio is taken as the profit level indicator (PLI) in the TNMM analysis. The PLI of the company is arrived at 10% on cost whereas the average PLI of the comparables is arrived at 9.64% and hence, international transaction was taken to be at Arms Length Price [ALP. 7. During the course of transfer pricing assessment proceedings, the TPO questioned the selection matrix and pointed out that some of the filters used are inappropriate, as the economic analysis is inadequate and proposed his own filters, which are as under: i) companies whose date is not available for F.Y. 2012-13 are excluded; ii) companies whose software development service income is less than Rs. 1 crore are excluded; iii) companies whose revenue from services is less than 75% of the total operating revenues are excluded; iv) companies who have export sales less than 75% of the sales from software development services are excluded; v) companies having more than 25% related party transactions, sales as well as expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext grievance in respect of TP adjustment relates to not accepting Ace BPO Services Pvt Ltd as a valid comparable to the ITES segment of the appellant. 14. Before us, the ld. counsel for the assessee vehemently stated that the TPO has rejected this company on the ground that it is functionally not comparable to the assessee company. It is the say of the ld. counsel for the assessee that this company is functionally comparable as it is engaged in rendering BPO services which is evident from the Annual Report of this company. The ld. counsel for the assessee further stated that the BPO services are akin to the ITES services rendered by the assessee. The ld. counsel for the assessee further stated that this company also passes all the filters applied by the TPO and, therefore, prayed for inclusion of this company. 15. The ld. counsel for the assessee drew our attention to the decision of the co-ordinate bench at Hyderabad in the case of M/s. Hyundai Motor India Engineering Pvt. Ltd ITA No. 1807/HYD/2017 and pointed out that on similar circumstances, the Tribunal has directed for inclusion of this company. 16. Per contra, the ld. DR strongly objected for inclusion of this company on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the assessee The assessee incurred an expenditure of Rs. 3,50,08,872/- towards rebate and discounts on sale of services rendered to various parties. Complete details of discount paid to its AEs vis a vis sales of services to various customers alongwith percentage of discount offered during the year were furnished. The Assessing Officer asked the assessee to justify the payment in light of fact that there was no nexus between the customer and holding company and, therefore, expenses so made are not allowable. The assessee filed detailed submissions vide letter dated 19.12.2016 which has been extracted by the Assessing Officer from pages 3 to 10 of assessment order. 23. After perusing the submissions of the assessee, the Assessing Officer was of the opinion that the assessee has not been in a position to justify the payment of discount to the holding company in place of repayment of the same to customer on its own. According to the Assessing Officer, in common parlance, a discount is given by the service provider to a customer against agreed charges to promote business and obtain repeated orders. But the assessee, for reasons best known to him, in place of offering discount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paper book. 29. We find that as per the agreement/MOUs, BV overseas entities entered into MSA with overseas customers for provision of testing and inspection services. Simultaneously, BV overseas entities enter into a MOU with the appellant, instructing them to provide testing and inspection services to the overseas customer /agents/ affiliates/ supplier. The assessee provides services as required, from time to time and BV overseas entities computes the global sale of services made to the overseas customers and accordingly computed the volume discount payable to them. Such discount percentage is allocated amongst the affiliates of BV overseas entities which also included the assessee company based upon their proportionate sales vis-à-vis global sale and such discounts are recovered from its affiliates which also included the assessee company and finally, rebate is passed upon to third party vendor. Some sample proof of remittances are placed in the paper book. 30. In our humble opinion, these agreements/MOUs were before the lower authorities and nowhere the Assessing Officer has demonstrated that these are sham transactions. Without properly appreciating the agreement, th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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