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TMI Blog2020 (12) TMI 469X X X X Extracts X X X X X X X X Extracts X X X X ..... chnology enabled services ("ITeS") rendered by the tax payer, u/s . of the Income-tax Act, 1961. Post which, the Appellant appealed before the Dispute Resolution Panel ("DRP") and subsequently, the Learned Assessing Officer ("Learned AO") sc the final assessment order with a transfer pricing ("TP") adjustment of Rs. 1,75,37,569. 2. Learned AO / Learned TPO erred in rejecting the TP documentation maintained by the appellant on invoking provisions of sub-section (3) of 92C of the Act contending that the application or data used in the computation of the ALP is not reliable or correct. In doing so, the Learned AO / Learned TPO has grossly erred in: 2.1 rejecting comparability analysis carried in the TP documentation and replacing it with a fresh comparability analysis based on the application of the following additional/revised filters in determining the ALP: 2.1.1 Companies having different financial year ending (i.e. not March 31, 2010) or data of the company does not fall within 12 month period i.e. 01-04- 2009 to 31.-03- 2010, were rejected; and 2.1.2 Companies whose data is not available for the Financial Year 2009- 10 were excluded. 3. The Learned AO / Learned TPO, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Resolution Panel ('DRP'), irrespective of the fact that 25% threshold had been proposed by the learned TPO in the Order issued on 29th January, 2014." I.T.(TP) A No. 207/BANG/2016 The Hon'ble DRP/Ld. Assessing Officer , erred on facts and in law in making the transfer pricing adjustment of Rs. 1,65,16,692/- holding that the international transactions pertaining to provision of Information Technology enabled Services ('ITeS') services do not satisfy the arm's length principle envisaged under the Act and in doing so have grossly erred by: 1.1 Rejecting comparability analysis undertaken by the Appellant in the TP documentation/fresh search and replacing it with a fresh comparability analysis based on Application of the following additional/revised filters in determining the Arm's Length Price ('ALP'): 1.1.1 Companies who have export sales less than 25% of the sales in the case of ITeS cases were excluded; 1.1.2. Companies who have persistent losses for the last three years up to and including FY 2010-11 were excluded; 1.1.3. companies having different financial year ending (i.e. not March 31, 2011) or the data available does not fall within 12 month period i.e. 01- 04-200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Section 92CA of the Act. The TPO passed an order dated 29.01.2014 thereby making adjustment to the extent of Rs. 1,55,01,790/-. Thereafter, the Draft Assessment Order was passed on 04.03.2014. Being aggrieved by the Draft Assessment Order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP passed directions dated 17.11.2014. Accordingly, the Assessing Officer vide assessment order dated 30.12.2014 assessed the total income at Rs. 3,40,29,347 and made various additions. Vide order dated 01.08.2016, the Assessing Officer/TPO has rectified the earlier order under Section 154 of the Act, thereby revising the original adjustment of Rs. 17537570 to Rs. 10936710/-. Thus, a relief of Rs. 45,65,080/- was granted to the assessee. 4. Being aggrieved by the assessment order, the assessee filed appeal before us. 5. The Ld. AR submitted that Ground No. 1 is general in nature as regards to Ground Nos. 5, 6, 7, 8, 9, 10 and 13, the same are not pressed. As regards to Ground No. 12, the same has become infructuous, as the TPO has passed an order dated 01/08/2016 under Section 154 of the Act. 6. Thus, we are dismissing Ground No. 1, 5, 6, 7, 8, 9, 10, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's revenue and margin is more driven by acquisitions and amalgamations of other companies rather than by its operational activities. Accentia's operations are classified under single segment 'Healthcare receivables management'. There is no mention of revenues derived or profits attributable to the segment/(s) considered under ITeS services. TPO has considered profitability of Accentia at an overall entity level which is incorrect. Accentia has experienced abnormal / supernormal / inorganic growth for the FY 2009-10 as compared to previous years. A trend analysis conducted on the profit margins of Accentia depicted a widely fluctuating trend. The Ld. AR also relied upon the decision of the Delhi High Court in case of PCIT vs. B. C. Management Services (P) Ltd. (ITA No. 1064/2017), PCIT vs. Actis Global Service Pvt. Ltd. (ITA No. 94/2017), Ameriprise India (P) Ltd. vs. DCIT (ITA No. 7014 of 2014 and XL India Business Services (P.) Ltd. vs. Addl. CIT (ITA No. 1477 & 4833 of 2017) as well as decision of the Tribunal in case of Omniglobe Information Technologies (India) (P.) Ltd. vs. ITO (ITA No. 1003/Del/2016). ii) Fortune Infotech Ltd.: This company was not proposed by the TPO as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany. Mere following a different financial year was not a valid reason for rejecting a comparable company as long as the data available were contemporaneous and in public domain at the time specified in the Rules. Further, the TPO ought to be consistent in his approach in selecting comparable year on year basis. R System has been accepted as a comparable company in the TP order passed by the TPO for the previous 3 Assessment Years i.e. 2006-07, 2007-08 and 2008-09, on the basis that is has an ITeS segment and qualifies all filters. Considering that there is no change in the business of R Systems in the current A.Y. 2010-11, rejecting this company as a comparable company would be inappropriate. The Ld. AR relied upon the decision of the Tribunal CIT vs. Mercer Consulting (India) P. Ltd. (2017) 390 ITR 615 (P&H) wherein the Delhi Tribunal order was confirmed by the Punjab and Harayana High Court. In CIT vs. Mckinsey Knowledge Centre India Pvt. Ltd. (ITA No. 217/2014), the Hon'ble Delhi High Court held that if the comparable is functionally same as that of tested party then same cannot be rejected merely on the ground that data for entire financial year is not available. If from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een that the benefit of range of +/- 5% as provided in proviso to Section 92C(2) of the Act was not taken into account by the TPO. Therefore, we direct the TPO that wherever there is a necessity the said benefit should be given to the assessee after verification. Ground No. 11 is partly allowed. 12. Thus, appeal of the assessee being IT (TP) A 171/Bangalore/2015 for Assessment Year 2010-11 is partly allowed. 13. Now we are taking up the appeal for A.Y. 2011-12. During the year, the assessee company filed its return of income for the A.Y. 2011-12 on 29.11.2011 declaring a total income of Rs. 1,98,74,040/-. During the year, it was observed that the assessee had international transaction exceeding Rs. 15 crores. Therefore, a reference was made to the Transfer Pricing Officer to determine the Arms' Length Price as per the provisions of Section 92CA of the Act. The TPO passed an order dated 14.01.2015 thereby making adjustment to the extent of Rs. 1,53,78,701/-. Thereafter, the Draft Assessment Order was passed on 12.02.2015. Being aggrieved by the Draft Assessment Order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP passed directions dated 13.11.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to pay for the services / products. However, the assessee company, being a routine service provider does not own IPR or sophisticated technology. This comparable Company also maintains inventory of its software products developed. Further, the company has invested in Strategic Tangent Corporation, a software development company which is having expertise in development of software related to EMR and SaaS. During the current year, investment was made for acquiring 16% of the total shares of the company. This shows this comparable company is expanding the area of software product development. This comparable company has also made some acquisitions / amalgamations in the earlier years which depicts that the Accentia had plans to grow through tie-ups and acquisitions of other companies This provides ample testimony to the fact that Accentia's revenue and margin is more driven by acquisitions and amalgamations of other companies rather than by its operational activities. Accentia's operations are not classified under single segment 'Healthcare receivables management'. There is no mention of revenues derived or profits attributable to the segment/(s) considered under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .77%. Accordingly, working capital adjusted margin is computed as 11.86%. 15.2 The Ld. AR further submitted that the following two comparables should be included as comparable which was rejected by the TPO i) R Systems International Ltd.: R Systems is functionally comparable to the Appellant. However, TPO rejected the same on the ground that it is following a different financial year ending. The TPO applied a filter that the companies which have different financial year ending are to be rejected. The law provides for the use of the latest available information and use of prior year data unless it can be shown that the years for which the data are available are unlikely to be representative. The Ld. AR submitted that the quarterly result for the period 1 January 2010 to 31 March 2010 and 1 January 2011 to 31 March 2011 are available in public domain. Accordingly, margin for the period 1 April 2010 to 31 March 2011 can be computed. Accordingly this company should be accepted as comparable company. Merely following a different financial year was not a valid reason for rejecting a comparable company as long as the data available were contemporaneous and in public domain at the time s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sales / foreign exchange earnings greater than 25% to the total sales, applied by the TPO. In view of above, the Ld. AR submitted that during the year under consideration, the company has not only passed the functional comparability criteria but also the quantitative filter. Hence, this company should be considered as a comparable. 16. The Ld. DR relied upon the order of the TPO. 17. We have heard both the parties and perused all the relevant material available on record. As regards exclusion of comparables, the assessee has demonstrated that Accentia Technologies Ltd. and ICRA Online Ltd. (seg.) both are functionally dissimilar to assessee's ITeS Segment. In fact in Accentia Technologies Ltd. there is an influence to the pricing policy because of its possession of Brand Value/IPRs. Accentia Technologies Ltd. has also made acquisition/amalgamation which depicts that the company had plans to grow through tie-ups and acquisitions of other companies. As regards to ICRA Online Ltd. (seg.), this company is functionally different and has three segment in which TPO has taken into account outsourced service segment which cannot be compared to the assessee's functioning. Therefore, both c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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