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TMI Blog2020 (11) TMI 1057X X X X Extracts X X X X X X X X Extracts X X X X ..... ri Sachit Jolly, C.A Respondent by : Shri Muzaffar Hussain, CIT (DR) ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present cross appeals has been filed by assessee as well as revenue against final order dated 28/12/2015 passed under section 143(3) read with section 144C of the act passed by Ld.DCIT Circle 3(1)(2), Bangalore for assessment year 2011-12 on following grounds of appeal: ITA (TP) A No. 251/B/2016 1. The directions of the Dispute Resolution Panel are opposed to law and facts of the case. 2. Whether the order of the Hon'ble DRP in rejecting comparable cases by insistence on strict comparability under TNMM defeats the very purpose of the law relating to determination of ALP under the IT Act. 3. Whether the Hon'ble DRP was right in seeking exact comparability while searching for comparable companies of the assessee under TNMM method whereas requirement of law and international jurisprudence require seeking similar comparable companies. 4. Whether the Hon'ble DRP is correct in fact and law in concluding that the companies selected by the TPO are not comparable to the assessee overlooking the fact that reasonably accurate adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o which was not available to the Appellant at the time of complying with the Transfer Pricing Documentation ( TP Documentation ) requirements. [corresponding to ground 4(a) of original grounds of appeal] b) Disregarding the application of multiple year/prior year data as used by the Appellant in the TP documentation and holding that current year (i.e. FY 2010-11) data for comparable companies should be used; [corresponding to ground 4(b) of original grounds of appeal] c) Upholding the non-acceptance of the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, and upholding conducting a fresh economic analysis for the determination of the arm's length price in connection with the impugned international transactions by the Ld. TPO and in holding that the Appellant's international transaction in the services segment is not at arm's length. [corresponding to ground 4(c) of original grounds of appeal] d) Disregarding the functional comparability of the comparables identified by the Appellant with respect to the Services segment. [corresponding to ground 4(d) of original grounds of appeal] e) Upholding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntation and for the determination of comparables while conducting the search. [corresponding to ground 4(g) of original grounds of appeal] h) Arbitrary adoption of certain filters for the determination of comparables while conducting the search. The learned AO/DRP erred in confirming the action of learned TPO in the application of related party transaction filter of greater than 25% of sales as against 20% as applied by the appellant. i) Rejecting certain companies which otherwise pass the test of comparability and are functionally comparable to the Appellant in respect of its Services segment and were also not particularly disputed by the Appellant. (i) The learned AO/DRP erred in law and in facts in excluding Cosmic Global Ltd. because the company has subcontracting expenses whereas this company should have been included as it is functionally comparable. [corresponding to ground 4(i) of original grounds of appeal] (i) The learned AO/DRP erred in law and in facts in excluding Cosmic Global Ltd. because the company has subcontracting expenses whereas this company should have been included as it is functionally comparable. [corresponding to ground 4(i) of original gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claring total income of Rs.86,34,42,657/-. The return was processed under section 143(1) of the Act, and the case was selected for scrutiny. Notices under section 143(2) and 142(1) was issued to assessee. In response to statutory notices, representative of assessee appeared before Ld.AO and filed requisite details as called for. 3. Ld.AO observed that assessee had international transaction exceeding Rs.15 crore and therefore reference was made to the transfer pricing officer to determined arm's length price of the transaction as per provisions of section 92C of the Act. 4. Upon receipt of reference, Ld.TPO called upon assessee to file requisite details of the transaction in Form 3 CEB. Ld.TPO observed that, assessee had following international transaction with its associated enterprise: Particulars Amount (Rs.) 1 Contract Manufacturing a) Import of Raw materials 1286411783 b) Purchase of capital goods 6374000 c) Sale of manufactured goods 3716702436 Payme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Acropetal Technologies 26.86% 3 Cosmic Global Ltd. 9.81% 4 e4e Healthcare(capitaline) 12.38% 5 ICRA Online Ltd.(seg) 34.21% 6 Jeevan scientific technology Ltd 70.66% 7 Infosys B P 0 Ltd. 17.89% 8 Jindal Intellicom (capitaline) 11.13% 9 Mindtree Ltd (seg) 10.76% 10 iGate Global solutions Ltd 25.07% Average Margin 24.77% 7. Aggrieved by the proposed adjustment, assessee raised objection before DRP. 8. DRP in its directions suo moto excluded 3 comparables being cosmic global, e4e healthcare and mind tree (SEG). 9. It also agreed to exclusion of Jeevan Scientific Technology Ltd., and iGate Global Solutions Ltd., based on the submissions made by assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ract of the decision is reproduced for ease of reference:- 13. On the third issue in appeal no. 52/2018, in view of the circular of CBDT where word Cess is deleted, in our considered opinion, the tribunal has committed an error in not accepting the contention of the assessee. Apart from the Supreme Court decision referred that assessment year is independent and word Cess has been rightly interpreted by the Supreme Court that the Cess is not tax in that view of the matter, we are of the considered opinion that the view taken by the tribunal on issue no. 3 is required to be reversed and the said issue is answered in favour of the assessee. Respectfully following the aforesaid view, we allow the additional ground raised by assessee. 18. Only issues alleged by both sides are in respect of comparables alleged for inclusion/exclusion by assessee as well as revenue under engineering design services segment. 19. Before we undertake comparability analysis, it is sine qua non to understand the functions performed, assets owned and risks assumed by assessee under this segment. 20. We note that Ld.TPO has analysed the functions performed by assessee as under: Functions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, fixtures, office equipment, vehicles and computers. It does not own any non routine intangible assets. Risks assumed: 28. In the TP study it has been submitted that any exposure to foreign exchange risk is largely mitigated by hedging through GE corporate treasury. It has also been submitted in the TP study that it does not bear any significant risk of technology obsolescence as the AE who owns all manufacturing technologies. It is also been submitted that the AE incurred expenses on behalf of assessee and that all the expenses incurred by assessee is reimbursed on cost basis. Classification: 29. In the TP study assessee has been characterised as contract manufacturer of medical equipment components and provider of engineering design services. 30. Based on the above characterisation, we shall undertake the comparability analysis of the comparables alleged by assessee as well as revenue for exclusion/inclusion. 31. At the outset, Ld.AR submitted that, Ground No.4(i) of assessee's appeal and Ground No.2 partly and Ground No.4 in revenue's appeal is for inclusion of 3 comparables. He submitted that these grounds raised by assessee as well as revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Nothing has been brought on record by Ld.CIT.DR in support of this argument. DRP excluded this comparable as it failed revenue earning filter of 75% applied by Ld.TPO. We also note that DRP excluded this comparable for one more reason because of huge fluctuation on the margins of the company over many years and for having no foreign exchange earning in respect of ERP segment. 40. We note that, Ld.TPO has considered this comparable at entity level which is not appropriate while it with comparing the engineering design segment of assessee. We therefore do not find any infirmity in the order passed by Ld.AO in excluding this comparable. IGate global solutions Ltd 41. This comparable was included by learnt TPO however DRP rejected it as it was engaged in diverse is filed activities being, software development services, contact Centre services and IT enabled services. DRP also noted that there was no segmental information available in respect of the 3 segments. 42. Ld.CIT DR relied on orders passed by Ld.TPO. 43. We have perused submissions advanced by both sides in the light of records placed before us. 44. We note that for the year under consideration this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services in the nature of high-end. He thus supported the order passed by authorities below. 54. We have perused submissions advanced by both sides in light of records placed before us 55. We note that, this comparable was challenged by assessee before this Tribunal for assessment year 2009-10 in ITA (TP) A No. 1 to 5 and 65/B/2014 by order dated 24/04/2019. This Tribunal observed as under: 10. The other grounds with regard to exclusion of comparables, chosen by the TPO and confirmed by the DRP are taken up for consideration. In Ground Nos. 14, 16) 17 . 18, the assessee has objected to the action of DRP in retaining the following 04 companies as comparable companies viz., i Infosys BPO Ltd., ii Accentia Technologies Ltd., iii. Cosmic Global Ltd., iv. Eclerx Services Ltd., 10.1. On exclusion of the aforesaid 04 companies as comparable companies, Ld. Counsel for the assessee drew our attention to the decision of the ITAT, Bangalore Tribunal rendered in the case of MIs. Novo Nordisk India Pvt. Ltd., Vs. DCIT in IT(TP)A No. 122/Bang/2014, AY.2009-10, dt.08-05-2015, wherein the comparability of the aforesaid 04 companies with the company engaged in providing ITES such as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nagement of data. He submitted that, this comparable also do not satisfy export revenue filter of 75% applied by learnt TPO. Referring to page 461 of annual report, he submitted that the total revenue earned by this comparable is rupees one, 93, 583 which is only 63.59% of the total sales. He also submitted that this company comparable has a huge related party transaction of 29.57% age and therefore do not satisfy the RPT filter of 25% applied by learnt TPO. 58. On the contrary learn CIT DR submitted that this comparable is functionally similar with that of assessee as it is involved in KPO services. 59. We have perused submissions advanced by both sides in light of records placed before us. 60. Admittedly Ld.TPO has considered the operations of outsourced service segment of this comparable for comparing with the engineering design services of assessee. From the annual report placed in the paper book, we do not find any description as to the nature of the services rendered by this comparable under this segment. From the annual report, we note that this comparable is largely engaged in analytical services and support for to clients in the area of data extraction, aggregatio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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