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TMI Blog2020 (11) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... also. In view of this, additional ground raised by the assessee does not have any merit. Hence dismissed. Comparability analysis - selection of comparable - HELD THAT:- Companies functionally dissimilar with that of assessee need to be deselected. Extraordinary events during the year in the comparable company s financial statements, which has impacted its profitability margins adversely need to be seen. When the comparable company is taken as good comparable, only requirement is to seen the functional operations of the standalone balance sheet. There are various issues which are mentioned in the management discussion and analysis of the consolidated accounts of the comparable company which are not at all relevant for the comparability analysis as it does not reflect in the annual accounts of the comparable company on standalone basis. Even otherwise, the revenue streams of the comparable also do not show that it earns any revenue from its LPO business or KPO business.- Accentia technologies Ltd, in absence of any other argument by the learned authorized representative, is held to be comparable and action of the learned transfer pricing officer and learned dispute resolution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following grounds of appeal:- 1. That on the facts and circumstances of the case and in law, the AO has erred in completing the assessment of the Appellant under section 143(3) read with section 144C(13) of the Act, at an income of ₹ 5,58,06,130 in pursuance to the directions issued by the DRP, as against returned income of ₹ 2,35,64,600. 2. That on the facts and circumstances of the case and in law, reference made by the AO to the TPO is void ab-initio and bad in law as the AO failed to provide copy of approval granted by the Commissioner of Income tax and affording any opportunity of being heard to the Appellant, in violation of the principle of natural justice. 3. That on the facts and circumstances of the case and in law, the AO/ Transfer Pricing Officer ( TPO ) / DRP have erred in making an upward TP adjustment of ₹ 3,22,41,526 in respect of the transaction pertaining to provision of back office medical transcription services to its associated enterprises ( AEs ), alleging that the same were not at arm s length. 4. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in not accepting the economic analysi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g medical data and information services. During the previous year assessee provided back office medical transcription services to its associated enterprise amounting to ₹ 360,138,248/ at the markup of 22.18% on total operating cost. Incorporating the same, assessee filed its return of income on 27/9/2010 declaring an income of ₹ 23,564,600/-. The case of the assessee was picked up for scrutiny and the international transactions were referred to the learned Transfer Pricing Officer for determining arm s-length price. 4. The assessee benchmarked its transaction using Transactional Net Margin Method [TNMM] as the Most Appropriate Method[MAM]using Operating Profit/Total Cost[OP/TC]as the Profit Level Indicator [PLI] selecting six comparable companies where there average margin was 11.86% using the multiple year data, assesse computed its own margin at 22.19% and stated that its international transactions are at arm s-length. 5. The learned Transfer Pricing Officer examined the transfer pricing study report of the assesse, issuedshow cause notice challenging the benchmarking analysis and accept / reject metrics along with filters used by the assessee. Learned TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has raised an additional ground of appeal as per application dated 8 August 2018 is Under:- That on the facts and circumstances of the case and in law, the order passed by the transfer pricing Officer (TPO) the consequential transfer pricing adjustment made including the assessment order passed by the assessing officer is bad in law and liable to be quashed, as the order dated January 9, 2014 passed Under 92CA of the act, has been passed by an officer not having jurisdiction to act as TPO Under Chapter X of the act. With respect to the above ground, it was stated that it is a jurisdictional, legal ground, which can be raised at any point of time during the pendency of the appeal, goes to the root of the matter, does not require any investigation of facts; therefore, it may be admitted. 8. The learned departmental representative vehemently objected to the same stating it is not raised before either TPO / DRP AO. There is no justification for it. 9. On careful analysis of additionalground raised, we find that it goes to the root of the matter, legal in nature challenging the jurisdiction and the validity of order passed by the transfer-pricingofficer; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re reference is to be made to the Transfer Pricing Officer, The Transfer Pricing Officer means a Joint Commissioner Or Deputy Commissioner Or Asst Commissioner authorised by the board to perform all or any of the functions of an assessing officer specified u/s 92C and 92D in respect of any person or class of persons. It needs to be clarified that assessee is not arguing that there is no authority from the board in favour of the learned transfer pricing officer i.e. the Additional Commissioner Of Income Tax who passed the order u/s 92CA (3) of the act. The challenge of the assessee is that that Additional Commissioner as a class of officers, are not included in the definition of the Transfer Pricing Officer u/s 92CA of the Act. The Joint Commissioner of Income Tax has been authorised to pass an order u/s 92CA of the Act. The Joint Commissioner has been defined u/s 2 (28C) of the Act wherein the Joint Commissioner means a person appointed to be a Joint Commissioner Of Income Tax Or An Additional Commissioner Of Income Tax Under subsection (1) of Section 117 of the Act. Therefore the definition of the Joint Commissioner includes the Additional Commissioner also. In view of this, addit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny has classified itself as a knowledge process outsourcing company wherein it has been stated that it is the fastest-growing healthcare receivable cycle management company and is now also ventured into legal process outsourcing, data process outsourcing and high-end software services delivery besides offering software as a services (SAAS). e. It was further stated that it has only a single segment as healthcare receivable management and there is no segmental data available from the new ventures like legal process outsourcing, data process outsourcing and high-end software services delivery, whereas the learned transfer-pricing officer has considered the profitability of the comparable company at an overall entity level, which is incorrect. f. The learned authorised representative referred to the series of judgments wherein the above comparable company has been directed to be excluded on account of extraordinary event of amalgamation, on account of significant intangibles, functionally different being engaged in development of software products for healthcare and being engaged in diverse activities of KPO LPO and for the reason of nonavailability of segmental financial stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat there are extraordinary events during the year wherein some company was amalgamated with the comparable company and it has impacted the figures [profitability] of the impugned company for the financial year ended on March 31, 2010. To examine this argument it is necessary to look into the notes on account (schedule 10 (B) (1))wherein the brief note on the amalgamation of merged company with comparable company is mentioned. According to that note, the effective date of amalgamation is 1 April 2008 and according to that scheme, it has been given effect to in the accounts of the year. Therefore, it is apparent that the accounts of the assessee are recast from 1 April 2008. In fact, we are in financial year 2009 10;therefore, it is apparent that there is no amalgamation during this year. It does not impact the profitability of the comparable. Further, it is not the case of the assessee that the merged company is carrying on any different business then the comparable company. In fact as there is no functional dissimilarity pointed out between the merged company and comparable, we do not find that it has any impact on the comparability analysis. Even otherwise looking at that note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lgamation during the year which has impacted the financial statements of the assessee, because it is pertaining to merger with effect from 1 April 2008 and of similar line of business. With respect to the significant intangible, we have read detailed note given in the annual accounts of the standalone balance sheet wherein the only goodwill on amalgamation/merger is accounted for, therefore it cannot have any impact as it is merely an accounting entry. The functional dissimilarity is not shown by the assessee such as LPO/KPO of business of the comparable company with its revenue stream, which we have noted that this the reference in the business management discussion and analysis pertaining to the overall consolidated operations of the assessee company and not on the standalone balance sheets of the company. When the comparable company is taken as good comparable, only requirement is to seen the functional operations of the standalone balance sheet. There are various issues which are mentioned in the management discussion and analysis of the consolidated accounts of the comparable company which are not at all relevant for the comparability analysis s it does not reflect in the annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... development services, the learned transfer pricing officer has held that the above comparable is merely an ITeS company and he referred to the notes to the accounts in schedule wherein it is stated that the company considers all of the services to be related to one segment i.e. IT enabled services and concluded that it operates in singles segment with respect to products and services. Therefore, he submitted that same should be included in the comparability analysis. With respect to the other arguments he submitted that same were not raised before the learned transfer pricing officer. He further referred to page number 7 of the direction of the Dispute Resolution Panel where this comparable was held to be includible in comparability analysis as there is no functional dissimilarity, even on the issue of high turnover and extraordinary event in case of the comparable. 23. We have carefully considered the rival contentions and perused the orders of the learned Transfer Pricing Officer/direction of the learned DRP. The assessee at page number 717 817 of the paper book submits the annual report of the above comparable company. Standalone financial statements are available at page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd Honourable Bombay High Court held that a comparable company having a turnover of ₹ 260 crores (HCL commet Ltd] cannotbe compared with the assessee having only ₹ 11 crores turnover. Thus, the honourable Bombay High Court upheld the exclusion of the comparable which is having turnover 23 times of the assessee. Here we are pitched to compare a comparable which is having turnover 26 times larger than the assessee. Therefore on this ground, we accept the argument of the assessee that such a large comparable cannot be used to determine ALP of an international transaction of the assessee. Therefore respectfully following the criteria laid down by the honourable Bombay High Court, we direct the learned transfer pricing officer to exclude I gate global Ltd. 24. Similarly, the assessee has also argued for exclusion of Infosys BPO Ltd, which is having the turnover more than 31.29 times, and TCS E serve Ltd having turnover of 62 times larger than the assessee does. Therefore, for the reasons given by us for exclusion of I gate global Ltd, we also direct the learned transfer-pricing officer to exclude Infosys BPO Ltd and TCS E Serve Limited from the comparability analysis. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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