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TMI Blog2020 (2) TMI 1632X X X X Extracts X X X X X X X X Extracts X X X X ..... t services ("ITES") to its Associated Enterprises ("AEs") through a master services agreement with Aon services Corporation, USA ("Aon Service Corp.) for which it is remunerated on a cost plus basis. 5. During the relevant previous year, the international transaction that took place between the Assessee and its AEs was the provision of ITEs to them at a price of Rs. 44,92,78,673/-, for which a TP adjustment of Rs. 2,60,45,974/- was made by the TPO in the Transfer Pricing order dated 14.01.2015("TP Order'). Initially, a draft assessment order dated 27.03.2015 was passed by the AO in which the aforesaid TP adjustment made by the TPO was incorporated. Further, in the said draft assessment order. the AO made a disallowance under section 40a(i) of the Act of Rs. 73,45,331/- being the amount reimbursed by the Assessee to its AEs, on the ground that the Assessee had failed to deduct applicable taxes at source on the same. Further, the eligible deduction under section 10A of the Act, was recomputed by the AO by reducing an amount of Rs.1,15,02,332/- being expenses incurred in foreign currency for communication and an amount of Rs.1,03.03,615/- being expenses incurred in foreign curren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profit margin of those companies was 14.96%. Since the Assessee's profit margin was more than that of the average profit margin of comparable companies, the Assessee claimed that the price received in the international transaction should be accepted as at Arm's Length. 8. The Transfer Pricing Officer (TPO) to whom the question of determination was referred to by the AO, accepted only 5 viz., Accentia Technologies Ltd., Cosmic Global Ltd., ICRA Online Ltd., Infosys BPO Ltd. and Jeevan Softech Ltd. out of the 14 comparable companies chosen by the Assessee and rejected the other 09. In choosing the above comparable comparable companies, the TPO applied the following Filters: Step Description 1 Companies whose data for FY 2010-11 is not available-Excluded 2 Companies whose ITeS revenue < Rs.1 Cr - excluded 3 Companies whose ITeS and related services revenue is < 75% of the total operating revenues - excluded 4 Companies which have more than 25% related party transactions of the sales - excluded 5 Companies which have less than 25% of the revenues as export sales - excluded 7 Companies having different financial year ending - excluded 8 Companies which have persistent l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e's appeal are: (i) That the DRP erred in directing the exclusion of Acropetal Technologies Ltd. on the ground that it is functionally different (Ground No. 2) (ii) That the DRP erred in directing the exclusion of Jeevan Scientific Technologies Ltd. on the ground that it failed the service income filter of greater than 75% of total revenue. (Ground No. 3) (iii) That the DRP erred in directing the exclusion of iGate Global Solutions Ltd. on the ground that its segmental results were not available (Ground No. 4) 13. As far as Ground No. 2 in the Revenue's appeal regarding exclusion of Acropetal Technologies Ltd. (`Acropetal-) by the DRP is concerned, the learned DR reiterated the stand of the revenue as reflected in the order of the TPO and in the grounds of appeal which is to the effect that there cannot be any difference between Knowledge Process Outsourcing (KPO) and Business Process Outsourcing (BPO). The learned counsel for the Assessee placed reliance on the decision of this Hon'ble Tribunal in Swiss Re Shared services (India) Pvt. Ltd. v. ACTT (order dated 08.07.2016 in IT(TP)A No. 380/Bang/2016) and e4e Business Solutions India P. Ltd v. DCIT [Order dated 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inality. We further find that the total revenue of this company from 5 different segments of the Assessee was Rs.246.75 lakhs and the segmental revenue from BPO segment was less than Rs.1 crore. The TPO considered the ERP service as also BPO service which is incorrect since ERP implementation services are not in the nature of IT enabled services which were notified by CBDT vide Notification No. SO 890(E) dated 26.09.2000. If the service income from the BPO segment alone is considered, the component of service income to the total revenue of this company is less than 75% of total operating revenue. In any event if the turnover of BPO segment is considered it is less than Rs.1 Crore and this company fails to satisfy the TPO's own filter of service revenue from the relevant segment having to be in excess of Rs. 1 crore as the revenue from the BP0 segment of the said company is Rs. 79 lakhs only. The company is therefore not comparable to the Assessee and the DRP's findings on exclusion of Jeevan are right in law and ought not to be interfered with. In this regard we find that this Hon'ble Tribunal in Swiss Re Shared services (India) Pvt. Ltd. v. ACIT (order dated 08.07.2016 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only from its export turnover without making a corresponding reduction in its total turnover. The Assessee's submission before the DRP was that the communication expenses were not attributable to the delivery of software outside Indian and that the foreign currency expenses were not incurred for providing technical services outside India. Therefore, it was contended that the expenses ought not to have been reduced from its export turnover in the first place. In the alternative, it was contended that if the same was to be reduced from the export turnover, then the expenses should also be reduced from the total turnover. The DRP accepted the Assessee's alternate contention and held that the expenses ought to be reduced from its export and total turnover by following the judgment of the Hon'ble High Court of Karnataka in CIT Vs Tata Elxsi Ltd. 349 ITR 98 (Karnataka). In Ground no.5 & 6 in its appeal, the revenue is challenging the DRP's directions to the extent it directs that the expenses referred to above should be excluded from the export turnover as well as its total turnover while computing the deduction allowable u/s 10A. We are of the view that the order of the DRP does not cal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the assessee ought to have deducted tax at source on the aforesaid payment u/s 195 of the Act. Since the assessee did not deduct tax at source, the AO was of the view that the aforesaid payment had to be disallowed and the payments which was claimed as deduction by the assessee in computing income from business should be disallowed and added to the total income u/s 40(a)(ia) of the Act. It was the plea of the assessee that the sum in question was not in the nature of fees for technical services and the assessee had deducted tax at source on the salary cost u/s 192 of the Act. This plea was rejected by the AO. The DRP however, deleted the addition made by the AO by following the decision of the Hon'ble ITAT in assessee's own case in respect of similar payment in assessment year 2008-09 in ITA No./1640(B)/2012 & CO No.63(B)/2013. 21. Aggrieved by the order of CIT(A), the revenue has raised ground no. 7 to 9 before the Tribunal. At the time of hearing, it was submitted by the learned counsel for the assessee that provision of sec.40(a)(ia) of the Act, can be invoked only when there has been non-deduction of tax at source. It was submitted that in the present case, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) 7. Examining the matter, we find that there are two angles to the matter: The first is whether it was a case of 'no deduction' or not in the present case. The answer would be in the negative because, the deduction was already made at the rate of 1%. The second angle would be as to whether it was under a bona fide wrong impression that only 1% was deducted instead of 2%. The contention of the assessee was that, having realized that deduction was 2% instead of 1% the amount of TDS has been paid with interest. It is also a matter of fact that, two separate rate of deductions have been provided for the same work of contractor , one is at the rate of 1% if the contractor is individual or HUF, whereas, it is 2% of the contractor is other than individual or HUF. The Tribunal, in view of facts and circumstances, found that, it is a bona fide wrong impression. 8. As such, on the aspects of the bona fide wrong impression keeping in view the contention of the assessee that in the middle of year, there is change of law about the deduction, as well as on the non-availability of the provisions of section 40(a)(ia), when the issue is covered by the Calcutta High Court judgment in case of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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