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TMI Blog2021 (10) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... . That on facts and circumstances of the case and in law, the reference made by the Ld. AO suffers from jurisdictional error as the Ld. AO did not record any reasons in the draft assessment order based on which he reached the conclusion that it was "expedient and necessary" to refer the matter to the Ld. TPO for computation of the arm's length price, as is required under section 92CA(1) of the Act. 3. The Ld. DRP/Ld. AO/Ld. TPO erred in facts and circumstances of the case and in law by rejecting the Assessee's claim of being a low end IP support service provider (ITES) and recharacterizing it as a core software developer without providing sufficient opportunity to the Assessee and by selectively and narrowly interpreting the facts of the case. 4. The Ld. DRP/Ld. AO/Ld. TPO erred in facts and circumstances of the case and in law by making an addition of INR. 10,36,01,764/- to the returned income of the Appellant by recomputing the arm's length price of the international transactions under section 92 of the Act by: 4.1 Inappropriately applying the filters to arrive at a cherrypicked result; 4.2 Rejecting companies selected by the Appellant in its transfer pricing document ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kes into account the impact of outstanding receivables on profitability and therefore, no further imputation of interest is warranted. 3. That on the facts and circumstances of the case and in law, the Ld. DRP/Ld. AO/Ld. TPO erred in ignoring the fact that even if the notional interest on delayed receivables is being charged, the same should be netted off against outstanding payables. 4. That on the facts and circumstances of the case and in law, the Ld. DRP/Ld. AO/Ld. TPO erred in not including the notional interest on delayed receivables as an operating item for computing operating margin of the Appellant. It is further submitted that the aforesaid additional ground of appeal does not involve any fresh investigation into facts of the case. The Appellant by way of this application, craves leave of the Hon'ble Bench to raise the aforesaid additional ground. In view of the decision of the Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. vs CIT: 229 ITR 383 as also the decision in the case of Jute Corporation of India vs. CIT:187 ITR 688 and the discretion vested with your Honours under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected. 7 Coral Hub Ltd. (Vishal Info. Tech. Ltd.) Functionally not comparables. Rejected 8 Fortune infotech Ltd. RPT, Rejected 9 Informed Technologies India Ltd. Sales less than Rs. 5 crore. Rejected. 10 Infosys BPO Ltd. Accepted 11 jeevan Softech Ltd. (Seg.) Sales less than Rs. 5 crore. Rejected. 12 Jindal intellicom Pvt. Ltd. Accepted 13 Microgenetics Systems Ltd. Income from BPO business is less than Rs, 5 crore. Rejected. 14 R systems International Ltd. (Seg.) FY December ending. Rejected. 8. The TPO, in addition to the three comparables accepted from the assessee's chart selected further 5 comparables as under: S. No. Company Name 1 Acropetal technologies Limited(Seg) 2 ICRA Techno Analytics Limited 3 e4e Healthcare Business Services Pvt Ltd 4 Eclerx Services Ltd. 5 TCS E-Serve Ltd 9. Adopting average of 29.53%, the TPO recomputed the operating margin as under: S. No. Company Name OP / TC (%) 1 ICRA Techno Analytics Limited 25.24% 2 Jindai Intellicom Ltd. 13.70% 3 Acropetal technologies Limited(Seg) 14.36% 4 e4e Healthcare Business Services Pvt 9.77% 5 Accentia Technologies Ltd. 29.18% 6 Eclerx Services L td. 56.82% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... include global leaders in Financial Services, Manufacturing, Retail, Media, Travel and Hospitality. About 97% of our revenues come from Fortune 500 or Financial Times 500 clients." 15. Functional profile of Eclerx shows that it is a Knowledge Process Outsourcing (KPO) company and is providing domain specific reengineering expertise in partnership with financial services firms to increase control and execute ongoing functions. It is also providing consulting, business analysis and solution testing services which provides a broad suite of services that allows its clients to operate on day-to-day basis including trade processing, reference data, accounting & finance and expense management activities. Similarly, under sales and marketing services segment, as has been described at page 767 of the annual report paper book, Eclerx provides web content management & merchandising execution, web analytics, social media moderation and analytics, search engine analytics & support, CRM platform support, lead generation, supply chain and channel analytics, price & catalogue competitive intelligence etc. 16. Coordinate Bench of the Tribunal in case of Ameriprise India Pvt. Ltd. in ITA No.2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the paper book which is tabulated as under :- xxxxx 20. So, the financials of Eclerx available in the public domain, referred to above, are not reliable rather include turnover of its subsidiary companies. 21. Eclerx has been found to be not suitable comparable vis-à- vis captive service provider by the coordinate Bench of the Tribunal in Ariba India Pvt. Ltd. vs. DCIT ITA No.5201/Del/2012. 22. So, in view of what has been discussed above, we are of the considered view that Eclerx is not a suitable comparable vis-à-vis the taxpayer, hence ordered to be excluded. 23. The taxpayer south exclusion of TCS E-Serve on grounds of functional dissimilarity; providing services predominantly to Citi Group; having high turnover and presence and payment for band; segmental information not available; having abnormal profitability trend and relied upon the decision of Hon'ble Delhi High Court in Avaya India Pvt. Ltd. vs. ACIT in ITA 532/2019, decisions of coordinate Bench of the Tribunal in case of Ariba India Pvt. Ltd. vs. DCIT ITA No.876/Del/2015, and Baxter India Pvt. Ltd. in ITA No.6185/Del/2016. 24. However, on the other hand, ld. DR for the Revenue drew our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores as contribution towards brand equity. When Rule 10(B) (2) is applied i.e. the FAR analysis, namely, functions performed, assets owned and risks assumed is deployed then brand and high economic upscale would fall within the domain of "assets" and this also would make both these companies as unsuitable comparables. 28. The Director's report of TCS E-Serve Limited bears out the contention of the Assessee that both entities have been leveraging TCSs scale and large client base to increase their business in a significant way. The submission that the two comparables offer an illustration of "an identical transaction being conducted in an uncontrolled manner" overlooks the effect of the Tata brand on the performance of the impugned comparables. The question was not merely whether the margins earned by the Tata group in providing captive service to the Citi entities were at arm's length. The question was whether they offered a reliable basis to re-calibrate the PLI of the Assessee whose scale of operations was of a much lower order than the two impugned comparables. The mere fact that the transactions were identical was not, in terms of the law explained in the above decisions, eit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Ground Nos. 2, 3 and 4 from additional grounds relate to addition on account of alleged interest on delay in collection of receivables from the AEs. 16. The TPO found that there was a delay in recovering debts from AEs. The TPO was of the opinion that since it was agreed that the debts should be repaid within 45 days and hence there is a delay in recovering debts. The TPO was of the opinion that interest rate of 11.69% would be arm's length of level of interest that needs to be charged for deemed loans advanced for the period of receivables outstanding beyond the period stipulated in the service agreement/invoice and proposed an adjustment of Rs. 1,53,65,454/-. 17. Objections were raised before the DRP and it was strongly contended that working capital adjustment take into account the impact of outstanding receivables and in the alternative, it was pleaded that internal CUP LIBOR + 200 basis points should be applied for such computation. 18. The DRP agreed and granted working capital adjustment and application of internal CUP i.e. Libor + 200 basis points. 19. Before us, the ld. counsel for the assessee vehemently stated that the interest on outstanding receivables is not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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