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TMI Blog2020 (11) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee as 1.17 Crores. Further, the said concern is engaged in wide set of services and the margins of the said concern cannot be compared with the margins of the assessee. We find support from the ratio laid down by the Tribunal in the case of sister concern itself. Similar is the proposition for the TCS E-serve Ltd. and TCS E-serve International Ltd. eClerx Services Limited - Since, the assessee is engaged in providing BPO services and eClerx Services Limited is engaged in KPO services, we find no merit in the inclusion of said concern in final set of comparables. M/s. R Systems International Limited (segmental) and M/s. Caliber Point Business Solutions Limited - In case from the available data on record, the results for the financial year as that of the tested party can be made available by the assessee, the AO/TPO may verify the same and include the said concerns i.e. M/s. R Systems International Limited (segmental) and M/s. Caliber Point Business Solutions Limited in the final list of comparables. We direct the Assessing Officer to afford reasonable opportunity of hearing to the assessee in order to decide the same and accordingly re-compute the Arm s length price of ITeS Segm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he then Learned AO") and final assessment order passed by the Deputy Commissioner of Income Tax, Circle 2(2), New Delhi ("the Learned AO"), pursuant to the directions of the Hon'ble Dispute Resolution Panel - I ("the Hon'ble DRP"), are bad in law and void- ab-initio. 2. The Learned AO following the order of the Learned TPO and DRP has erred in law and on the facts of the case in determining the total income of the Appellant at ₹ 48,980,680/- as against the returned income of ₹ 45,254,000/- therefore, to the extent of additions/disallowances made by the Learned AO, the order of the Learned AO is bad in law and needs to be annulled. Part I - Transfer pricing grounds of appeal 3. That on facts of the case and in law, the TPO/AO/ DRP have erred in rejecting the economic analysis undertaken by the Appellant by conducting a fresh economic analysis for international transaction pertaining to provision of back office support services ("impugned transaction"). 4. That on facts of the case and in law, the TPO/AO/DRP have erred in conducting a fresh economic analysis by using arbitrary filters for identifying companies comparable to the Appellant. The arbitrary f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt is only engaged in rendering provision of back office support services. 11. That on facts of the case and in law, the DRP without appreciating the risk profile of the Appellant, have erred in stating that the Appellant bears the significant risks and accordingly failed to make appropriate adjustments to account for varying risk profiles of the Appellant vis-a-vis the alleged comparables for impugned transaction 12. That on facts of the case and in law, the DRP ignored the principle of natural justice by not giving a finding on the additional evidence filed by the Appellant with respect to comparable company namely Microland Limited. 13. That on facts of the case and in law, the TPO/AO/DRP have erred and vitiated the principle of natural justice by not giving due cognizance to the detailed analysis and technical arguments submitted by the Appellant in respect of certain companies. 14. That on facts of the case and in law, the DRP has grossly erred in giving a direction to rectify the arithmetical errors in the computation of the operating margins of alleged comparable companies in compliance with the Income Tax Act ("the Act") without appreciating that Indian re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abase under section 32 of the Act. 5.2 . That on facts and circumstances of the case and in law, the Hon'ble DRP has erred in confirming and accordingly, the Learned AO has erred in following the assessment orders passed by his predecessor for assessment years 2002-03 to 2009-10 that the acquired business database could not be regarded as plant and machinery. 5.3 That on facts and circumstances of the case and in law, the Hon'ble DRP has erred in confirming and accordingly the Learned AO has erred in not appreciating that the database falls under the head of "intangible asset" and accordingly, depreciation of ₹ 3,003,387 should be allowed on the same. 5.4 That on facts and circumstances of the case and in law, the Hon'ble DRP and Learned AO has erred in not following the decision of Hon'ble ITAT, Mumbai in appellant's own case for AY 2002-03 which is binding on them. Disregard of cost of goodwill 6. That on facts and circumstances of the case and in law, the Hon'ble DRP has erred in confirming and accordingly the Learned AO has erred in restricting the cost of goodwill to Rs NIL instead of ₹ 80,000,000 on the basis that no goodwill exists in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncy and traveler's cheque and is an authorized full fledged money changer. During the year under consideration, the assessee had undertaken international transactions with its AE. The Assessing Officer made reference under section 92CA(1) of the Income Tax Act, 1961 (in short 'the Act') to the TPO to benchmark the Arm's Length Price (in short 'ALP') of the international transactions undertaken by the assessee. The TPO conducted FAR analysis of the international transactions undertaken by the assessee and noted that the assessee was providing services to its AE under the head provision of marketing support services and also under ITeS segment. 5. The assessee was compensated by AE for services rendered on cost plus 15% markup basis. The cost comprised of staff salaries, all administrative costs indirectly incurred in respect of the services rendered after undertaking the functions performed and the risk assumed. The TPO proposed certain revised filters to benchmark the international transactions undertaken by the assessee. The assessee had selected 10 comparables for benchmarking the international transactions but only 4 out of 10 comparables were finally selected by the TPO. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich are functionally not comparable to the assessee, which are as under:- • Accentia Technologies Ltd. • Infosys BPO Limited • eClerx Services Limited • TCS E-serve Limited • TCS E-Serve International Ltd. 7. The assessee is also aggrieved by the non-inclusion of R Systems International Limited (segmental) and Caliber Point Business Solutions Limited. The Ld. AR for the assessee pointed out that in case, the revised list of comparables is accepted, then the margin shown by the assessee would be within +/-5% of the mean margins of the comparables. The Ld. AR for the assessee also pointed out that after this all other issues raised in relation to Transfer Pricing adjustment would become academic. 8. The Ld. DR for the Revenue strongly placed reliance on the orders of the authorities below. 9. We have heard the rival contentions and perused the records. The assessee is mainly engaged in providing business support services to its group entities as per service agreement entered into between the parties. The major business of the assessee is the provision of market support services. The AO and TPO had benchmarked the aforesaid international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of sister concern i.e. American Express (I) P. Ltd. in ITA No.1426/Del/2015, relating to Assessment Year 2010-11, vide order dated 17/07/2019. In the entirety of the submissions made by the Ld. AR for the assessee and in view of the services provided by the assessee, which are back office services, the concern Accentia Technologies Ltd. cannot be held to be comparable to the assessee on the ground of it being not functionally comparable. The said proposition is laid down in the case of sister concern (supra) vide para 28 at page 19 of the order. Another aspect to be kept in mind is the extraordinary event of amalgamation, which has occurred during the year and such concern with extraordinary event cannot be held to be comparable in the year of the amalgamation. Accordingly, we hold so. The AO/TPO is directed to exclude Accentia Technologies Ltd. from the final list of comparables. 12. Now coming to the concern Infosys BPO Limited, which is selected as functionally comparable concern to the assessee. In the first instance, it has large scale of operations totalling ₹ 1126 Crores against the total turnover of the assessee as ₹ 1.17 Crores. Further, the said co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be selected as comparable with a concern whose brand value is less. The Ld.DR for the Revenue stressed that the global entity of which the assessee is the subsidiary has high brand value. We find no merit in the stand of the Revenue in this regard. Even on the second issue of high turnover, the said concern i.e. TCS e-Serve Ltd. cannot be selected as comparable. The total turnover of the assessee during the year is ₹ 30.92 crores. On the other hand, the turnover of the TCS e-Serve Ltd. is ₹ 1578 crores. Accordingly we hold that the TCS e-Serve Ltd. is to be excluded from the final list of comparables. Similarly, Infosys BPO Ltd. which has both brand value and high turnover of ₹ 1312 crores cannot be selected as a concern comparable to the assessee whose total turnover is only ₹ 31 crores (approx.). Accordingly, we hold so." 14. Following the same parity of reasoning, since the said concerns are functionally dissimilar, there is no merit in including the same in the final list of comparables. The Assessing Officer/TPO is directed to exclude Infosys BPO Ltd, TCS E-serve Ltd. and TCS E-serve International Ltd. accordingly. 15. The last concern which the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er pricing adjustment. We have already elaborated on the issue in paras above and the Assessing Officer is thus directed to re-compute the adjustment on account of transfer pricing in the hands of the assessee, if any, after affording reasonable opportunity of hearing to the assessee on the ground of inclusion of two concerns i.e. M/s. R Systems International Limited (segmental) and M/s. Caliber Point Business Solutions Limited, as per our directions in the paras above. Other concerns as directed are to be excluded from final list of comparables. We hold so. 20. The ground of appeal nso.7, 13 and 14 are against the application of Safe Harbor Rules. The Hon'ble Delhi High Court in Pr. CIT vs Fiserv India Pvt. Ltd., in ITA No.17/2016, order dated 06.01.2016, vide para-10 has held that Safe Harbour Notification dated 18th September 2013 relied upon by the Revenue is prospective. Since, Safe Harbour Rules are not operative for the year under consideration; hence, the orders of authorities below are reversed on this ground. 21. Now, coming to the ground no.16 under part-I i.e. on account of interest chargeable on receivables. The case of the AO/TPO is that where the assessee had not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the matter and as held by Hon'ble Delhi High Court in the case of CIT vs. Oracle India Pvt Ltd (243 CTR 103), when the price fixed is acceptable as arms length price by Transfer Pricing Officer (TPO) under section 92 of the Act, it cannot be open to the Assessing Officer to disturb that price so paid as unreasonable. We have also noted that the Assessing Officer has doubted the appropriateness of the consideration of ₹ 12 crores without any cogent material to come to the conclusion that this is excessive or unreasonable, but then the TPO whose duty is it to examine whether or not the price paid in intra associate enterprises transactions are at arms length price or not has accepted the transaction without making any arms length price adjustment. There is no material whatsoever to establish or even indicate that the price of ₹ 12 crores paid for the Acquired Business Database is excessive or unreasonable and only the basis of Assessing Officer's coming to the conclusion about his subjective judgment. When the valuation of Acquired Business Database has been examined by TPO while concluding that the database price adjustment for the said year and no adverse inferenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ₹ 12 Crores towards acquired Business database. 29. Another issue raised by the assessee is against the order of the Assessing Officer in restricting the cost of goodwill to nil and not allowing depreciation on it. The Ld. AR for the assessee again pointed out that this issue is also covered by the decision of the Tribunal in assessee's own case in Cross Objection No.202/Mum/2009 (arising out of ITA No.4106/Mum/2007), relating to Assessment Year 2002-03, order dated 29.10.2014. 30. The Ld. DR for the Revenue strongly placed reliance on the orders of the authorities below. 31. We find that this issue is also covered by the decision of the Tribunal in assessee's own case. The relevant findings of the Tribunal read as under:- "3. At the time of hearing before us, the AR pointed out that the issue was impugned in the assessment year and the issue of valuation of goodwill travelled upto the ITAT, Mumbai and the coordinate Bench in the original order held that the valuation of Goodwill was correct and held that entire payment of ₹ 12crores was towards acquire business, thereby allowing a claim. 4. Respectfully following the order of the ITAT in assessee's own c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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