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TMI Blog2022 (8) TMI 1379X X X X Extracts X X X X X X X X Extracts X X X X ..... ices to its AEs.We accordingly direct the AO to exclude M/s Infosys BPO Ltd from final set of comparables. TPO/AO is accordingly directed to re-work the arm s length margin of the finally selected comparables and benchmark against the assessee s margin and/or international transactions. - I.T.A. No. 1319/Mum/2015 - - - Dated:- 11-8-2022 - SHRI B. R. BASKARAN, AM AND SHRI ABY T. VARKEY, JM For the Assessee : Shri Nishant Thakkar / Ms. Jasmin Amalsadvala For the Revenue : Ms. Samruddhi Hande (Sr. AR) ORDER PER ABY T. VARKEY, JM: This is an appeal preferred by the assessee challenging the assessment order dated 28.01.2015 passed for AY. 2010 11 by AO u/s 143(3) r.w.s 144C (13) of the Income Tax Act, 1961 (hereinafter the Act ) in pursuance to the directions given by the Ld. Dispute Resolution Panel (DRP). 2. The ground of appeal raised by the assessee is as under: 1. On the facts and circumstances of the case and in law, the learned AO, after considering the directions issued by the Hon'ble DRP, has erred in making an upward transfer pricing adjustment of INR 29,289,858 in determining the arm's length price (ALP) of the international tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 Cost allocation 6,217,782 3 Interest on debentures 1,459,399 4 Recovery of expenses 18,234,090 5 Reimbursement of expenses 133,011 4. The international transaction involving provision of administrative support and back office support services was benchmarked using the Transactional Net Margin Method (TNMM) as the Most Appropriate Method ( MAM ) to determine the Arm s Length Price ( ALP ). The assessee had taken Operating Profit to Total Cost ( OP/TC ) ratio as the Profit Level Indicator ( PLI ) under TNMM which worked out to 14.36% on total cost. The assessee had identified eleven (11) comparables whose PLI was computed at 11.39%. It was thus claimed that the aforesaid international transaction was at arm s length. The AO had referred the international transactions undertaken by the assessee to the TPO for the purpose of determination of the ALP. The TPO however was not agreeable to the search conducted by the assessee on the Prowess and Capital Line Plus Da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. Sr. AR appearing on behalf of the Revenue vehemently supported the orders of the lower authorities. He pointed out that the Ld. DRP had rightly observed that, only 14% of the revenue of M/s. CG-Vak Software Exports and less than 11% of the revenue of M/s. R. Systems International was derived from their respective BPO related business activities, whereas the bulk of the activities of both these concerns were software services and therefore there were rightly categorized by the lower authorities as functionally different. He invited our attention to the findings of the Ld. DRP wherein it was noted that, the business structure of both these concerns would be geared for their primary activity. According to the DRP, the segmental accounts wherein the financials relatable to the BPO segments are typically derived, using allocation keys, are from the overall revenues and relatable expenses of the entire business. Such derived BPO segmental results of concerns primarily engaged in software service like the two presently under consideration would not be comparable to an entity like the assessee which is wholly or predominantly operating in the back office support segment. He also refe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee. It is further submitted that M/s R. System s comparability was considered at length and accepted on the very same ground by a coordinate bench of this Tribunal in ITA No.1973/Del/2014 for Asstt. Year 2009-10 and the Tribunal recorded that inasmuch as this company has not been rejected on the ground of functionality, if the quarterly results are available in the public domain wherein the figures for the relevant quarter are also available, there cannot be any difficulty to work out the proportionate margin. While placing reliance on the decision of this Tribunal in the case of Cadence Design Systems India Ltd., the Tribunal directed the TPO to consider the quarterly results and work out the proportionate margin results. 31. We have gone through the order and also the facts involved in this matter. The rejection of this comparable is not on the ground of functional dissimilarity, but only because of a different accounting period. Facts being similar, we are of the considered opinion that it is a fit case to direct the ld. AO to consider the quarterly results and work out the proportionate profit margin for this purpose, we remand the matter to the file of the ld. TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tal was rejected as a comparable in the assessee s own case by this Tribunal in their order dated 29-11-2016 in ITA No. 779/Mum/2013 for AY. 2008-09. This Tribunal had held that Acropetal had high onsite development charges and low employee cost ratio which makes it incomparable to assessee which has no onsite development charges and high employee cost. 10. It was also brought to our notice that the Acropetal was rejected as a comparable by this Tribunal in the case of Swiss Re Services India Pvt. Ltd. vs. DCIT (114 taxmann.com 640) for AY. 2010-11 on the ground that Acropetal did not have ITeS segment but it was only rendering Engineering Design Services. The relevant observations of the Tribunal are as under: - 22. Now turning to the comparability of Acropetal Technology Ltd. we have seen that the ld. TPO while considering the functional comparability has considered all of its three segments including the IT Segment. The ld. AR vehemently submitted that the segments of this comparable are provided at page 24 of this comparable company are the segments for AY 2009-10. And that ld. TPO has wrongly mentioned the IT segment of Acropetal as ITeS segment which is factually incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. Now coming to M/s Infosys BPO Ltd, it was brought to our notice that Ld. DRP has rejected this company as a comparable in assessee s own case for AY. 2008-09 and, the order of the Ld. DRP was accepted by the Revenue and no further appeal was filed before this Tribunal challenging the same (Page 244 257 of PB). It was also brought to our notice that the M/s Infosys BPO Ltd has been rejected by the TPO himself in assessee s own case for the subsequent AY. 2012-13, copy of the order is found to be placed at Pages 327-330 of the paper book. The Ld. AR also drew our attention to the decision of the Tribunal in Swiss Re Services India Pvt. Ltd. vs. DCIT (supra) wherein on similar facts and circumstances, Infosys BPO was rejected as a comparable as it was a huge company with different risk profile and nature of services, having its own brand value and IPs, unlike the assessee which broadly provided only back office support services to its AEs. The findings recorded in this regard, by this Tribunal are as under: 21.So far as exclusion of Infosys BPO is concerned, we have seen that the assessee itself included Infosys BPO Ltd. in its TP study and furnished related data about th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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