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TMI Blog2022 (12) TMI 862X X X X Extracts X X X X X X X X Extracts X X X X ..... CCOUNTANT MEMBER AND Ms. ASTHA CHANDRA, JUDICIAL MEMBER Assessee by Sh Ajay Vohra, Sr. Adv. Mr. Neeraj Jain, Adv. Mr. Abhishek Aggarwal, CA Revenue by Sh. Sandeep Kumar, Sr. DR ORDER PER SHAMIM YAHYA, AM, This appeal by the assessee is directed against the order of the Assessing Officer, dated 31.03.2021, passed in accordance with DRP direction dated 19.03.2020. 2. Grounds of appeal reads as under:- 1. That the impugned order of Assessing Officer [ AO ] dated 31.03.2021, passed under section 144C read with section 143(3) of the Income-tax Act, 1961 ( the Act ), is bad in law and unsustainable. 2. That the assessing officer erred on facts and in law in proposing to complete assessment under section 144C read with section 143(3) of the Income-tax Act ( the Act ) at an income of Rs. 57,29,061 as against the returned loss of Rs. 2,95,95,477. 3. That the AO/ Transfer Pricing Officer ( TPO ) erred on facts and in law in making addition to the income of the appellant of Rs. 3,53,24,538 on account of the alleged difference in arm s length price of the international transactions undertaken by the appellant. 3.1 That the AO/TPO erred on f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rules: a) JSB Staffing Solutions Pvt Ltd b) Service Max Facilities Management Pvt Ltd c) Checkmate facility electronic solutions Pvt Ltd. 3.8 That the TPO erred on facts and in law in rejecting MNR Solutions Private Limited as comparable on the basis that the annual report of the company has not been furnished by the appellant even though the annual report of the company is available in public domain. 3.9 Without prejudice, that the TPO erred on facts and in law in not restricting the adjustment to the cost attributable to the international transaction of provision of IT administration and coordination services. 4. That the AO erred on facts and in law in initiating penalty proceedings under Section 271(l)(c) of the Act. 3. Brief facts of the case are that during the year under consideration, the assessee company was engaged in rendering IT administration and Coordination services to NOSW as per the term of the agreement dated 01.10.2014. The assessee had entered into international transaction with its Associated Enterprises. SMA Nutrition is wholly owned subsidiary of Nestle SA and is in the process of setting up distribution business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Aarvi Encon Ltd. 7.65% 4 Pressman Advertising Ltd. 11.36% 5 Ace Integrated Solutions Ltd. 12.84% 6 K H F M Hospitality Facility Mgmt.Services Ltd. 13.82% 7 IC R A Management Consulting ServicesLtd. 13.84% 8 Concept Public Relations India Ltd. 15.01% 9 L E Human Resources Solutions Pvt. Ltd. 15.69% 10 Killick Agencies Mktg. Ltd. 18.30% 11 E D CIL (India) Ltd. 21.10% 12 Praendex Management Resources Pvt.Ltd. 23.90% 13 Kitco Ltd. 32.01% 14 Interactive Manpower Solution Pvt. Ltd. 35.54% 35 Percentile 12.84%z ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... details before the TPO as under:- S.No. Employee Name Designation Segment Job Description/Profile 1 Sharat Kumarij guda Head of IS/IT Office Business Support Overall supervision of the work being undertaken in the segment 2 Rajashekar Venkata Gopala Senior Manager IS/IT Business Support Rendering IT administration and coordination services to NOSW 3 Suryanarain Malladi IT Manager Business Support -Assistance in overview of Compliance management of services provided by India based External Service Providers (ESP) to NOSW -Follow up of implementation of audit findings -Adherance to Nestle s Security policies/principles -Support ESP s KPI/Service Monitoring, and quality assurance -Ensure adequate escalation of issues/incidents 4 Vineela Readdy Vontari Officer Techno Operation support Busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gmental analysis stated that the entire turnover of the appellant was derived from the international transactions undertaken with the associated enterprises and therefore concluded that the appellant is operating in only a single segment not appreciating that segregation of segments is to be based on FAR of business activities carried by the appellant in different segments, and not solely on the revenue earned from a particular segment ignoring the cost and FAR completely. It is submitted that in terms of section 92 of the Act the TPO is required to determine the arm s length price of an international transaction undertaken by the appellant. However, by considering the entity level financial statements of the appellant the TPO has proceeded to benchmark the transactions undertaken by the appellant with independent entities/third parties and thereby exceeding the mandate provided under section 92 of the Act. It is submitted that the entity level financial statements of the appellant includes cost and revenue derived from the international transaction of provision of services to the associated enterprises as well as cost incurred in connection with setting up of the local ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Technimount ICB India Pvt Ltd vs ACIT (ITA No 7098/Mum/2010) the Hon ble Tribunal while upholding the preference of segmental profitability statement over entity level margins held as under (Pg 14 of CL PB): 24. Now, coming to the main issue whether the segmental results are to be taken into consideration or profit margin at entity level is to be considered, we find that Chapter-X incorporates special provisions relating to avoiding of tax in regard to international transactions and income from international transactions has to be determined at arm s length price. Therefore, as per the provisions contained under sections 92 to 94, international transactions are to be taken into consideration. Therefore, segmental results are to be considered and not the profit at entity level. Reliance in this regard is placed on tne decision of Bangalore Bench of the Tribunal in the case of UCB India Pvt. Ltd. v ACIT 121 ITD 131 (Mum) wherein the Hon ble Tribunal held as under (Pg 45 of CL PB): Only in cases where profits of an enterprise are attributable to similar transactions and when an enterprise does not have any other transaction or activity which is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted by the appellant for the purpose of benchmarking analysis. It is submitted that operating margin of the appellant after considering foreign exchange loss as non-operating in nature is worked out at 12.42% computed as under: A mnt (INR) Receipts 2,55,27,186 Less: recovery of out of pocket expenses (11,29,654) Operating income 2,43,97,532 Employee benefit cost 16,850,179 Operational support services 18,85,93 Travel and conveyance(excluding out of pocket expenses incurred on behalf of overseas visitors and travellers, having no relation with rendering of services under contact service agreement dt.01.10.2014) 98,515 Rent 15,03,392 Other administrative expenses 17,36,541 Total 2,20,73,820 Less: Exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed the appellant to file submissions in rebuttal to the aforesaid proposition convassed by the Ld. DR. In response thereto, it is submitted that the segmental cannot be discarded merely on the basis that the same are not certified. There is no mandate / direction / requirement in the Act / Rules making it mandatory / compulsory for the segmental to be certified by an auditor / CA before the same can be taken into consideration. The Delhi bench of the Hon ble Tribunal in the case Birlasoft India Ltd. vs. DCIT (44 SOT 664) held as under: 16.2 On perusal of AS-17 read with paragraph 5 thereof, we find that AS-17 requires reporting of financial information or result about the different types of products and services that the concerned business segment produces, which includes different geographical areas of business operation. In the present case before us, we find that the appellant-company provides same software related services to both Associated Enterprises and unrelated parties. It is not anybody s case that the appellant-company is not providing same software related services to both Associated Enterprises and unrelated/uncontrolled parties. Therefore, the appe ..... 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