9911796707
TMI Blog2021 (2) TMI 877X X X X Extracts X X X X X X X X Extracts X X X X ..... essee for the year under consideration. Before parting, we may herein observe, that the assessee had furnished before us a Chart , wherein it is stated that in case if the aforementioned three companies are excluded from the final list of comparables, then, its International transactions of provision of support services to its AEs would meet the arms length standard and no adjustment would be warranted. It is stated by the assessee that as the value of its International transactions i.e provision of ITeS services is higher than the tolerance limit of +/- 5% as per the erstwhile sec. 92C(2) . As we have excluded the aforementioned three companies from the final list of comparables, the A.O is therefore directed to verify the aforesaid claim of the assessee. In case the value of the International transactions of the assessee is found higher than the value of the tolerance band of +/- 5%, then, no adjustment shall be therein be made by the A.O. Disallowing credit for TDS - HELD THAT:- As despite the fact that the same was claimed in the return of income. As the aforesaid claim of the assessee would require verification of the facts from the records, we therefore, direct the A.O to loo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the learned TPO is liable to be quashed or alternatively ignored. 5. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding/confirming the action of the learned TPO of selecting companies using information gathered under section 133(6) of the Act. 6. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding/confirming the action of the learned TPO of disregarding the Appellant's contention with respect to the functional non-comparability of the alleged comparables selected by the learned TPO. 7. On the facts and in the circumstances of the case and in law, the Hon'ble DRP erred in upholding the action of the learned TPO of considering companies engaged in rendering high-end services such as knowledge processing services, engineering design services etc as comparable to the Appellant. 8. On the facts and circumstances of the case the learned AO erred and Hon'ble DRP further erred in upholding/confirming the action of the learned TPO in considering companies earning supernormal profits as comparable without appreciating I comparing the functions, asset and risk undertake ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t' of ₹ 13,48,51,798/- under Sec. 115JB of the Act and paid taxes on it. Subsequently, the assessee had filed a revised return of income on 31-3-2010, declaring its total income at ₹ 70,59,620/- and a 'book profit' of ₹ 13,48,51,798/-. The return of income filed by the assessee was processed as such under sec. 143(1) of the Act. Thereafter, the case of the assessee was selected for scrutiny assessment under sec. 143(2) of the Act. 3. During the course of the assessment proceedings, the A.O made a reference under sec. 92CA(1) of the Act to the Transfer Pricing Officer-1(3), Mumbai (for short "TPO") for benchmarking the International transactions of the assessee. The TPO vide his order passed under Sec. 92CA(3), dated 31-10-2011, on the basis of a detailed reasoning given in his order suggested an adjustment of ₹ 17,13,58,467/- to the Arm's Length Price (for short "ALP") of the International transactions of the assessee. After receiving the order passed by the TPO under Sec. 92CA(3), dated 31-10-2011, the A.O passed a draft assessment order under Sec. 144C r.w.s 143(3), dated 28-12-2011, and proposed an adjustment of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(3), dated 31-10-2012 had assessed the income of the assessee at ₹ 12,86,52,580 under the normal provisions and determined its 'book profit' u/s 115JB at ₹ 13,48,51,798/-. Adverting to the nature of the International transactions of the assessee, it was submitted by the ld. A.R that the controversy involved in the present appeal is confined to the benchmarking of the business support services (ITeS) of ₹ 135.83 crores that were inter alia provided by the assessee to its group entities across the world. It was averred by the ld. A.R that in case if three comparable companies viz. (i). Mold Tek Technologies Ltd.; (ii). Eclerx Services Ltd.; and (iii). Accentia Technologies Ltd that were wrongly included by the TPO/DRP as comparable in the final list of 20 comparables for benchmarking the business support services (ITeS) of ₹ 135.83 crores that were inter alia provided by the assessee to its group entities during the year under consideration were excluded from the list of comparables, then, the international transactions of the assessee would be within the tolerance limit +/- 5% and thus would be within arm's length. 6. Per contra, the ld. Departm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12.57 18.86 10.65 4. Cosmic Global Limited 12.17 7.44 21.00 9.80 5. CRISIL Limited 6.35 12.55 14.64 9.45 6. Datamatics Technologies Limited 6.35 7.01 7.62 12.79 7. ICRA Management Consulting Services Limited 16.80 8.77 7.62 12.79 8. ICRA Online Limited 6.98 32.66 7.62 19.82 9. IDC (India) limited 11.49 11.64 11.65 11.56 10. Mphasis Limited 6.35 7.01 10.55 6.68 11. R. System International Limited 6.35 7.01 7.62 6.68 Overall Arithmetic Mean 9.89 13.15 11.73 11.52 As the arithmetic mean margin of the aforesaid comparables worked out at 11.52%, it was, thus, claimed by the assessee that as its operating margin was more than the arithmetic mean of the aforesaid comparable companies, its International transactions were therefore at arm's length price. 8. The TPO after necessary deliberations did not find favour with the adoption of 2-3 years data by the assessee to work out the weighted average margin for computing the PLIs of the comparable companies. Being of the view that the aforesaid methodology adopted by the assessee was not in conformity with Rule 10D(4) of the Income-tax Rules which prescribed adoption of the current y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been taken as a comparable which is not correct accordingly this is not a good comparable and hence rejected. 11. ICRA Online Ltd. - BPO Services The company is a subsidiary of ICRA Ltd. As per the information submitted by the company, its ITES segment fails 25% RPT filter. In this regard, the annual report of the company 9Contained in AR for ICRA Ltd) and reply received from the company are enclosed herewith as a soft copy. Accordingly, the TPO being of the view that the benchmarking carried out by the assessee was erroneous in view of Sec. 92C(3)(a) of the Act, rejected the same. Further, the TPO confronted the assessee with a list of 22 comparables with a mean margin of 27.53% along with the search strategy that was adopted for identifying them as comparables for the ITeS sector, as under: Sl. No. Name of the comparable Sales Total Cost Op. Profit OP/TC 1. Accentia Technologies Ltd (Seg.) 407293974 287301205 119992769 41.76% 2. Acropetal Technologies (Seg.) 208000505 153737300 54263205 35.30% 3. Aditya Birla Minacs Worldwide Ltd. 1881373000 184086000 0 40513000 2.20% 4. Asit C Mehta Financial Services ltd. (Seg.) 42434946 38782844 3652102 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. Datamatics Financial Services (Seg.) 34.87 9. E4e Healthcare Solutions Ltd. 16.72 10. Eclerx services LTd. 65.88 11. HCL Comnet Systems & Services Ltd. (seg.) (if it is within the R ? T filter of 25%) 32.90 12. Infosys BPO Ltd. 20.01 13. Jservices India Pvt. Ltd. 9.58 14. Jindal Intellicom Pvt. Ltd. -8.66 15. Maple e solutionLtd. 20.43 16 Mold Tech Technologies Ltd. 96.66 17. R Systems International (Seg.) 4.30 18. Spanco Ltd. (Seg.) 11.04 19. Triton Corp. Ltd. 23.81 20. Wipro Ltd (Seg.) 30.05 The TPO giving effect to the aforesaid directions of the DRP, therein vide his order passed under Sec. 92CA(4) scaled down the adjustment to an amount of ₹ 12,15,93,156/-. In fact, a perusal of the order of the DRP reveals that the latter by directing the AO to work out the mean margin by considering the aforementioned 20 comparables had arrived at a mean margin of 24.98% (OP/TC) of the said comparables. 9. We shall now advert to the contentions of the ld. Senior counsel on the basis of which he had tried to impress upon us that the aforementioned three comparable companies had wrongly been included in the final list of comparables by the TPO/D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r short 'D.R') relied on the orders of the lower authorities. It was submitted by the ld. D.R that as the aforementioned company was functionally comparable and was selected by the TPO by adopting the search strategy for identifying comparables for ITeS industries, therefore, the claim of the ld. A.R for exclusion of the said company did not merit acceptance. 10.2 We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. On a perusal of Page No. 1 of assessee's paper book (for short 'APB') to which our attention was drawn by the ld. A.R, we find, that as per the 'annual report' of the aforementioned company i.e Mold-Tek Technologies Ltd, it is a matter of fact borne from the record that the acquisition of Crossroads Detailing Inc., USA, an engineering services KPO, in April, 2007, had paved the way for the aforementioned company to enter into high rise buildings and commercial buildings space which had high growth potential. For the said r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o rebar detailing for concrete buildings in the recent past. In fact, the functional profile of the aforesaid comparable had came up before the 'Special bench' of the ITAT, Mumbai, in the case of Maersk Global Centres (I) Pvt. Ltd. Vs. ACIT, Circle 6(3), Mumbai, ITA No.7466/Mum/2012, dated 07.03.2014. It was observed by the Tribunal that the aforesaid company during the year under consideration was pioneer in structural engineering KPO services and its entire business comprised of providing only structural engineering services to its various clients. Further, as observed by the Tribunal, from the information available on the website, it stood revealed that the aforesaid company was a leading provider of engineering and design services with specialization in civil, structural and mechanical engineering services, and had a strong team of skilled resources with world class skill sets. As therein observed, the aforesaid comparable was stated to have consistently helped the clients to cut down design and development costs of civil, structural mechanical and plant design by 30%-40% and had delivered technologically superior outputs to match and exceed expectations. Further, it is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable by the TPO/DRP in the final list of the comparables. The ld. A.R had sought exclusion of the aforementioned company as a comparable primarily for three reasons, viz. (i). earning of abnormal profits due to the extraordinary event of acquisition of Igentica Travel Solutions Ltd. by the company in July, 2007; (ii) outsourcing of work to third party vendors by the company; and (iii) functional dissimilarity as in comparison to the assessee company. On the contrary, it was averred by the ld. D.R that the aforesaid company was selected as a comparable by the TPO on the basis of the search strategy conducted by his office for identifying comparables for the ITeS sector. It was thus submitted by the ld. D.R that as the aforesaid company was rightly selected as a comparable for benchmarking the International transactions of the assessee for the year under consideration, therefore, there was no merit in seeking of exclusion of the same from the final list of comparables. 11.1 On a perusal of the 'annual report' of the aforementioned company i.e Eclerx Services Ltd., we find that it is a matter of fact borne from the record that it had during the year under consideration acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, that the said company was in the business of providing data analytics and data process solutions to some of the largest brands in the world and was recognized as experts in chosen markets-financial services, retails and manufacturing. It was observed by the Tribunal, that the aforesaid company was providing complete business solutions by combining people, process improvement and automation and had employed over 1500 domain specialists working for the clients. It was observed, that the aforesaid company was providing industry specialised services for meeting complex clients needs, data analytics KPO service provider specialising in two business verticals - financial services and retail and manufacturing. It was stated to be engaged in providing solutions that not only just reduced cost, but helped the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. Further, the aforesaid company was stated to have a scalable delivery model and offered solutions that included data analytics, operations management and report services. Also, it was providing tailored process outsourcing and management services along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative (for short 'D.R') had strongly supported the inclusion of the aforesaid company in the final list of comparables. It was submitted by the ld. D.R that as the aforesaid company being functionally comparable was rightly included by the TPO/DRP in the final list of comparables, therefore, the claim of the assessee for exclusion of the same from the final list of comparables being devoid of any merit was thus liable to be dismissed. 12.2 We have heard the authorized representatives in context of the inclusion of the aforesaid company as a comparable by the lower authorities. On a perusal of the 'annual report' of the aforementioned company i.e Accentia Technologies Ltd., it transpires that it is a matter of fact borne from the records that two units in Trivandrum, viz. (i). Iridium Technologies; and (ii). Geosoft Technologies had amalgamated into the parent company i.e Accentia Technologies Ltd. (the aforesaid company), during the financial year 2007-08. In fact, as per the 'annual report' the amalgamation of the aforesaid two units is stated to have been the launching pad for the company to consolidate its base in India and abroad through inorganic growt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id functional profile of the abovementioned company i.e Accentia Technologies Ltd, as can be gathered from its 'annual report' Page 26 - 29 of APB, we are of the considered view that the same can be held to be functionally dissimilar to the assessee which is into provision of business support services (ITeS) to its group entities across the world. 12.6 In the backdrop of our aforesaid observations, and reasons given above, we are of a strong conviction that the abovementioned company, i.e Accentia Technologies Ltd. also could not have been included in the final list of the comparables for the purpose of benchmarking the international transactions of the assessee for the year under consideration. 13. As observed by us hereinabove, we are of the considered view that the abovementioned three companies which were included by the TPO/DRP in the final list of comparables for benchmarking the International transactions of the assessee, viz. (i). Mold-Tek Technologies Ltd.; (ii). Eclerx Services Ltd.; and (iii). Accentia Technologies Ltd., in terms of our observations recorded hereinabove, cannot be held to be comparable to the assessee. Accordingly, we herein direct the A.O/TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
