9911796707
TMI Blog2021 (3) TMI 989X X X X Extracts X X X X X X X X Extracts X X X X ..... per to remand this comparable to the Ld.TPO to consider it in the light of the functions performed, assets owned and risk assumed by it vis-a-vis that of assessee. In the event the FAR analysis is found to be similar with that of assessee the same may be included in the final list of comparables. This ground raised by assessee stands allowed for statistical purposes. Inclusion of Accentia Technologies Ltd., and Informed Technologies Ltd. - DRP rejected these comparables suo moto for the reason that, M/s Accentia Technologies were functionally different and the data of M/s.Informed Technologies India Ltd., was not reliable in view of the fact that segmental data was not available - From the transfer pricing order, we note that, the Ld.TPO has not raised any objection regarding the functional profile of these comparables. However since the DRP raised certain objections which needs to be verified, the same is remanded to the Ld.TPO for due verification. We are therefore of the opinion that the comparables needs to be verified by the Ld.TPO afresh. Needless to say that assessee shall furnish all relevant details in respect of these comparables available with it in support of its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Resolution Panel ( Hon'ble DRP ) grossly erred in adjusting the transfer price by INR 2,32,56,458/- of the Appellant's international transactions with its Associated Enterprises ( AE5 ) with respect to the Information Technology enabled Services ('ITeS') rendered by the tax payer u/s 92CA of the Income- tax Act, 1961. 2. The learned AO/learned TPO/Hon'ble DRP erred in rejecting the TP documentation maintained by the Appellant by invoking provisions of subsection (3) of 92C of the Act. 3. The learned AO/learned TPO/Hon'ble DRP erred in rejecting comparability analysis carried in the TP documentation and in conducting a fresh comparability analysis by introducing various filters in determining the ALP. 4. The learned AO/learned TPO/Hon'ble DRP erred in not considering the previous two years financial data of the comparable companies while determining the ALP. 5. The learned AO/learned TPO/Hon'ble DRP erred in applying different financial year ending filter while selecting the comparable companies, thereby not considering the fact that the relevant data for the concerned financial year could be deduced from the corresponding financia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 2. Assessee has also filed an application for admission of additional grounds were in following issues are raised: Based on the facts and circumstances of the case, M/s. Replicon Software India Pvt. Ltd., respectfully submits the following additional grounds of appeal for admission before Your Honours: Transfer pricing grounds 16.The Learned AO/TPO/Hon'ble DRP has erred in not appreciating the fact that negative working capital adjustment should not be allowed. The said ground is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add, alter, vary, omit, substitute or amend the above ground of appeal, at any time before or at,' the time of hearing, of the appeal, so as to enable the Honorable Income Tax Appellate Tribunal to decide this appeal acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer to determine the arm s length price of the international transaction. 11. Upon receipt of reference under section 92CA, the Ld.TPO called on the assessee to file the economic details of the international transaction in Form 3CD. The Ld.TPO found that, the assessee had following international transaction recorded in the TP study report : International Transactions Value (INR) Provision of software development services and ITES 15,74,10,533/- 12. The segmental details of the assessee in respect of the international transactions are as under: Particulars Amount (INR) Operating Income 15,74,10,533/- Operating Expenditure 14,02,11,728/- Operating Profit 1,71,98,805/- OP/OC 12.27% 13. The Ld.TPO noted that, the assessee computed its margin at 12.27% by using TNMM as most appropriate method and OP/OC as PLI. It selected 10 comparables with an average margin at 6.24% S.I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of current year data Companies having different financial year ending or data of the company which does not fall within 12 months period were rejected Companies who service income is less than ₹ 1Crore were excluded Companies whose IT Enabled services less than 75% of total operating revenues were excluded Companies who have more than 25% related party transaction of sales were excluded Companies who have export service income less than 75% of the sales were excluded companies with employee cost less than 25% of turnover were excluded 16. The Ld.TPO selected following comparables using above filters having average margin of 28.11% SI. No. Company Name Unadjusted Margin 1 Accentia Technologies Ltd. 2 Universal Print Systems Ltd. 52.46% 3 Informed Technologies India Ltd. 6.08% 4 Infosys BPO Ltd. 36.30% 5 Jindal Intellicom Ltd. - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons from assessee and accordingly not argued before this Tribunal. 25. In Ground No.11 assessee wishes to seek inclusion of only 1 comparable being Crystal Voxx Ltd. Other comparables alleged for inclusion in Ground No. 11 are being not pressed by the Ld.Counsel as per instruction from assessee and therefore not argued before this Tribunal. 26. In Ground No. 12 assessee seeks inclusion of Accentia Technologies Ltd. and Informed Technologies Ltd., which were rejected by the DRP suo moto. 27. In Ground No.13(a) assessee alleges that the Ld.AO did not rectify the working capital adjustment as directed by the DRP. Similar ground has been raised by assessee in the additional ground of appeal which is already been admitted by assessee herein above. The Ld.Counsel has not pressed for the risk adjustment, and accordingly the same is not adjudicated. 28. Ground No. 15 is in respect of considering the income reported in revised return filed by assessee which has not been followed by the Ld. AO as directed by DRP. 29. We shall 1st consider the comparables sought by assessee for inclusion/exclusion as under: 30. As per TP documentation at page 412 assessee performed follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oordinate bench of this Tribunal in case of M/s.Indicom Global Services (India) Pvt.Ltd vs DCIT reported in (2020) 116 taxmann.com 910 for same assessment year 2012-13. It has been submitted that these comparables were considered for exclusion as not comparable to a captive service provider therein under ITES segment by this Tribunal. He placed reliance on observations of this Tribunal in respect of all these comparables recorded in the case of M/s.Indicom Global Services (India) Pvt.Ltd vs DCIT (supra) 38. The Ld. CIT DR placed reliance on orders of authorities below and submitted that this comparable is functionally similar with that of assessee. 39. We have perused submissions advanced by both sides in light of records placed before us. We have also considered the observations by this Tribunal in respect of all these comparables recorded in the case of M/s.Indicom Global Services (India) Pvt.Ltd vs DCIT (supra). 40. We note that, the assessee before us is a captive service provider rendering services only to its AE as per the directions and requirement of AE. The assessee considered by this Tribunal in case of M/s.Indicom Global Services (India) Pvt.Ltd vs DCIT (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP/TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be allocated to BPO segment and if that is done then the OP/TC of this company will be only 51.80%. The Assessee further pointed out (Page 764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on such search this company was not regarded as engaged in providing ITES. At this stage the TPO ought to have dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter is applied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPQ. 51. The requirements of Rule 10B(1)(2) (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows: 10B. (1) For the purposes, of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:- (a) to (d) (e) transactional-margin method, by which, (i) the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ably accurate adjustments can be made to eliminate the material effects of such differences. 52. There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of net profit margin realized by the enterprise from an international transaction with the net profit realized from a comparable uncontrolled transaction . Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro. Label Printing, Offset Printing and Pre-press BPO. Whether the label printing and offset printing segments supplement the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt Ltd. (supra), wherein this comparable has been excluded by observing as under: '5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India (P.) Ltd. v. ACIT ITA No.6158/Del/2016 for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- 23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPQ Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd.. We find the submissions of the ld. counsel for the assessee before TPO/DRP th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed submissions advanced by both sides in light of records placed before us. Assessee placed reliance upon following decisions in support of its argument for exclusion of this comparable: Zyme Solutions Pvt Ltd. (supra) Baxter India (P.) Ltd. v. ACIT [2017] 85 taxmann.com 285 (Delhi - Trib.) Pr. CIT v. BC Management Services (P.) Ltd. [2018] 89 taxmann.com 68/253 Taxman 138/403 ITR 45 (Delhi) It is observed that this comparable has been excluded by this Tribunal. Assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions (P.) Ltd., (supra) by observing as under: 11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of XLHealth Corpn. India (P.) Ltd. (supra). The relevant findings of the Tribunal are as under: . . . We have heard the rival submissions and perused the material on record. From the perusal of the Annual Report of this entity placed at page Nos. 583 to 678 of paper book, at page No. 604 it is stated as under. 2. COMPANY OVERVIEW Your Company, along with its subsidiary companies - TCS e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Infotech India (P) Ltd. v. Dy. CIT [2018] 97 taxman.com 2 (Bang. - Trib.). 8. We have perused submissions advanced by both sides in the light of the records placed before us. Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription. We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are trained to understand language spoken by doctors, outside India to whom medical reports of patience are sent for expert opinion. Medical transcriptionist simply reproduces opinion expressed by Doctor, which is then communicated to the patients. It is observed from annual report placed at page 223 of paper book (Index to Annual Repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s handling business relations and managing customer relationships. It has been submitted by Ld.AR that this comparable fails employee cost filter. Ld.CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech India (P.) Ltd. (supra) 9. We have perused submissions advanced by both sides in light of records placed before us. Annual report of this company is placed at page 273 of paper book (Index for Annual Reports). In the Significant Accounting Policies reported at page 308 of paper book, it is observed that these companies operating businesses are organized and managed separately, according to nature of business and services provided with each segment, representing different strategic business unit. Note 15 at page 312 to refers to revenues from operations under the head information technology/BPO related services separately. It is observed that the function performed by this company as reported at page 285 reveals that it is engaged in business of providing customer care services and handling client business relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s year which had impact on the profit margin of this company and therefore rendering this company from being chosen as a comparable company. The Delhi ITAT in the case of BT e-Serve (India) Ltd. v. ITO ITA No.6690/Del/2016 for AY 2012-13 order dated 19.6.2018 considered the comparability of this company and came to the conclusion in paragraph 5.4 of its order that there was abnormal volatility of revenue of this company from 2009-10 to 2014-15 and therefore this company should not be regarded as comparable company. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid company from the list of comparable companies chosen by the TPO. It is observed from order passed by Ld.TPO at page 10 that assessee objected this company that employee cost filter being more than 25% has not been examined by Ld.TPO. It is observed that in decision of coordinate bench of Delhi Tribunal in case of Baxter India (P.) Ltd. (supra)this comparable failing employee cost filter has been analyzed as under: Further, from the order of the TPO we find he has obtained the employee cost and the sale for the ITES segment by exercise of his powers u s. 133(6). wherein the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. 43. This comparable has been alleged by assessee by way of additional ground with stands admitted hereinabove. 44. It has been submitted that this comparable was submitted by assessee in a fresh search during the Transfer Pricing proceedings however the same was not considered by the Ld.TPO. He thus submitted that the comparable may be considered as they are functionally similar with a captive service provider like that of assessee. 45. On the contrary, the Ld.CIT.DR submitted that this comparable was not raised by assessee for inclusion before the DRP and therefore cannot be raised at this stage. 46. We have perused submissions advanced by both sides in light of records placed before us. 47. Admittedly, this comparable has been filed by assessee before the Transfer Pricing officer for consideration. However the same was ignored by the Ld.TPO. It has been submitted that this comparable is functionally similar with that of assessee however as the same has not been verified and looked into by the Ld.TPO be deem it fit and proper to remand this comparable to the Ld.TPO to consider it in the light of the functions performed, assets owned and risk assumed by it vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in accordance with procedure laid down in the statute. In fact, there is no need for making any negative working capital adjustment, when assessee does not carry on with any working capital risk. All the Ld.TPO was supposed to do was to carry out necessary working capital adjustment to the profits of the selected comparables so as to make them comparable to assessee, rather than making negative working capital adjustment. 54. We accordingly, remand this issue back to the Ld.AO/TPO to recompute the working capital adjustment necessary to bring the comparables on par with that of assessee. Accordingly this ground raised by assessee stands allowed for statistical purposes. 55. Ground No. 15 is in respect of considering the income reported in revised return filed by assessee which has not been followed by the Ld. AO as directed by DRP. 56. We note that, the DRP had directed the Ld.AO to consider the income reported in the revised return of income however the same has not been followed. We thus direct the Ld.AO AO to follow the directions of the DRP, which is in accordance with law for computing income in the hands of assessee. Accordingly this ground raised by assessee ..... 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