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TMI Blog2022 (8) TMI 1428X X X X Extracts X X X X X X X X Extracts X X X X ..... olutions Private Limited (Exclusion) - The Bangalore Bench of the Tribunal in the case of M/s.Vee Technologies Private Limited v. PCIT [ 2022 (3) TMI 1533 - ITAT BANGALORE] had excluded the above company from the comparable list on account of functional incompatibility - we direct the TPO to exclude Crossdomain Solutions Pvt. Ltd. from the comparable list. Accordingly, the appeal of the assessee is allowed on this ground. Jindal Intellicom Private Limited (Inclusion) -The Bangalore Bench of the Tribunal in the case of M/s.Brady Company India (P) Ltd. [ 2022 (3) TMI 1528 - ITAT BANGALORE] had held Jindal Intellicom Private Limited is comparable company to ITES segment. Thus we direct the TPO to include Jindal Intellicom Limited in the list of comparables. Accordingly, the appeal of the assessee is allowed on this ground. Interest on delayed receivables - Tribunal has considered only the receivables as may be due beyond the credit period allowed under the agreement between the assessee and its AE as an international transaction, we are of the considered opinion that the same is a tainted transaction and therefore cannot be considered as a benchmark. We find merit in the submission of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the LIBOR rate. It is ordered accordingly. In the result, ground is allowed for statistical purposes. - Shri George George K, JM And Shri Laxmi Prasad Sahu, AM For the Appellant : Sri.Vishal Kalra, CA For the Respondent : Sri.Harishchandra Naik, CIT-DR ORDER This appeal at the instance of the assessee is directed against final assessment order dated 28.09.2018 passed u/s 143(3) r.w.s. 144C(13) of the I.T.Act. The relevant assessment year is 2014-2015. 2. The brief facts of the case are as follows: The assessee is engaged in providing Information Technology Enabled Services (ITES) to Nuance Transcription Services Inc., USA, which is an Associated Enterprise (AE) of the assessee. For the assessment year 2014-2015, the return of income was filed on 29.11.2014 declaring total income of Rs.19,03,20,830. The assessment was selected for scrutiny and notice u/s 143(2) of the I.T.Act dated 29.08.2015 was served on the assessee. During the course of assessment proceedings, it was noticed that the assessee had undertaken international transactions with its AEs. Hence, the matter was referred to the Transfer Pricing Officer (TPO) to determine the Arm s Length Price (ALP) of the same. The T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia Ltd applying filter of service income from ITeS, being less than 75% of the total operating income. 5.4 That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in rejecting the comparable companies (Allsec Technologies Ltd and Datamatics Financial Services Ltd) that have export service income less than 75% of the sales. 6. That on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in including comparable companies having significantly high turnover as comparable to the Appellant. 15. Notwithstanding and without prejudice, the AO / DRP/ TPO have erred in computing the period for which the receivables were outstanding (opening as well as during the year) and in not appreciating the period of payment of invoice agreed between the appellant and its AE under the agreements applicable to such outstanding receivable (opening as well as during the year) and further erred in computing the outstanding receivables period on weighted average basis. 16. Notwithstanding and without prejudice, that on the facts and circumstances of the case and in law, the AO / DRP / TPO have erred in arbitrarily adopting a notional rate @ 4.383 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Systems (I) Pvt.Ltd., it has been held that companies with turnover of above Rs.200 crores cannot be compared with companies with turnover of less than Rs.200 Crores. In view of the aforesaid decision of the Tribunal, we hold that the CIT(A) erred in not accepting the claim of assessee for excluding of companies, whose turnovers were more than Rs. 200 Crores and those companies remain un-comparable with assessee, because assessee s turnover was only Rs. 27.61 Crores. The 02 companies which would stand excluded by the application of turnover filter from the set of 10 set of companies chosen by the TPO are (i) M/s. Infosys BPO Limited, whose turnover is Rs.1312 Crores and (ii) TCS E-Serve Limited, whose turnover is Rs.1578.40 Crores. Accordingly, we hold that the aforesaid two companies should be removed from the list of comparable companies. The TPO is directed to compute the average Arithmetic Mean profit of the comparable companies chosen by the TPO, after excluding the aforesaid two companies. 11. In view of the above order of the Coordinate Bench of the Tribunal, we direct to exclude this company from the list of comparable companies. Microland Limited (Exclusion) 12. The lea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egments of Microland are in the nature of ITES only and held that its entire operations to be comparable to the assessee at entity level. 8.4.2 We have perused the Annual Report of the company Microland , placed at pages 140 to 277 of the paper book. At page 14 of the Annual Report, this company has characterized itself as a service company primarily rendering Infrastructure Management Services. At page 97 of the Annual Report, it is mentioned that the company is organized in business segments comprising of infrastructure services and ITES thereby clearly indicating that the services rendered in both segments are different and distinct from each other. In our view, the TPO / DRP have not brought on record any evidence to support their contention that both the aforesaid segments are rendering ITES only. If that were so, there was no reason whatsoever for the company to show Infrastructure Management Services as different and distinct segment from the ITES. 8.4.3 From an appraisal of the details submitted, it is seen that the services rendered by Microland under Infrastructure Management services are Server Management, Database Management, storage management, Archival Management, Net ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO to exclude Microland Limited as comparable. Accordingly, the appeal of the assessee is allowed on this ground. Crossdomain Solutions Private Limited (Exclusion) 16. The learned AR has submitted that the company is functionally different as it is engaged in Knowledge Processing Outsourcing providing services in the filed of HR, finance and administration, tax processes etc. It is claimed by the assessee that the same is different from ITES services rendered by it. The learned AR has drawn our attention to page 390 of the paper book wherein the Annual Report of the company, dealing with its functions, has been annexed. The learned AR has placed reliance on the ruling of the Bangalore Tribunal in the case of M/s.Vee Technologies Pvt. Ltd. v. PCIT in ITA No.7/Bang/2022 (A.Y. 2014-15) (order dated 07.03.2022). 17. The learned DR has reiterated the submissions of the authorities below. 18. We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of M/s.Vee Technologies Private Limited v. PCIT (supra) for assessment year 2014-2015, had excluded the above company from the comparable list on account of functional incompatibilit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w and business functions of Cross Domain is as follows: With a decade of experience in Payroll Outsourcing, Crossdomain has created a re-engineered payroll service EFFIPAY - that processes and delivers accurate payroll to clients with headcount up to 1000 employees in just 4 hours. With Effipay Lite and Effipay Lite Plus, our bouquet of services cover end to end payroll, retrials, reimbursement, tax proof verifications upto issue of Form 16 for employees of our clients across different industry verticals. Our processes are highly scalable and provide end to end payroll solutions to clients with headcount ranging from 5 to 65,000. Crossdomain's IT knowledge and domain competence has provided the edge to develop information systems to implement process innovation and continuously increase efficiency and turn- around-time for business critical processes. As can be seen from the above, the business of Cross Domain ranges from high end KPO services, development of product suites and routine low end ITES service. However, there is no bifurcation available for such verticals of services. Therefore the assessee contends that Cross Domain cannot be compared to a routine ITES service pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (P.) Ltd. (supra)has been filed by the Revenue. We further note that the impugned order records that the services provided by Crossdomain Solutions is in the nature of KPO ^Knowledge Process Outsourcing). 8. It is an agreed position between the parties that the entity at Sl. no.(v) above was a subject matter of consideration by this Court in the Revenue's appeal being Pr. CIT v. Aptara Technology (P.) Ltd. [2018] 92 taxmann.com 240. In the aforesaid case, this Court recorded the fact that M/s Crossdomain Solutions Ltd. was engaged in distinct activities such as payroll activity. 'Knowledge Process Outsourcing'(KPO) service, development of products and routine IT services. Thus, it was found not comparable with an entity which was rendering E-learning services, In the present case also the Respondent provides BPO services which is not with KPO services. Further the learned Authorised Representative substantiated his argument with Annual Report of comparable and we consider it proper to direct the TPO to exclude the comparable from the list of comparables for determination of ALP 12. Respectfully following the aforesaid decision, we direct exclusion of the aforesaid 3 co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany, Jindal ; which is placed at pages 498 to 975 of the paper book. At page 130 of the Annual Report (i.e., page 627 of the paper book), it is mentioned that the company is engaged in providing call centre services, both in the overseas and domestic market; export of call centre services forming a major part of its business activities. In these circumstances, the observation of the DRP that this company Jindal is engaged in software development services and ITES and segmental information is not available is not a factually correct observation; as borne out from the Annual Report of this company. Further, at page 160 of the Annual Report (i.e., page 657 of the paper book), it is seen that the segmental data of domestic and international segments of operation are given; thereby rendering the observations of the TPO is factually incorrect. 12.4.2 As far as the functional comparability of this company, Jindal is concerned, we find that the Co-ordinate Bench of this Tribunal, in the case of CGI Information Systems and Management Consultants Pvt. Ltd., (supra) for Assessment Year 2012-13 has held that this company should be included in the set of comparables for companies rendering I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 07/Bang/2016. 26. The learned DR has placed reliance on the orders of the subordinate authorities. 27. We have heard rival submissions and perused the material on record. We note that the Tribunal in assessee s own case for assessment year 2011-2012 has held as follows:- 5. As per the discussion above, we feel that in the present case also, this has to be worked out as to how much amount was received beyond the agreed credit period by the assessee from its AE and the same should be considered as a separate international transactions and appropriate interest on that account should be brought to tax in the present case as TP adjustment. The working given by the ld. AR of assessee in this regard is placed on record but this working is only in respect of debtors as on 31.03.2011 but if the debts are already liquidated during the year but the receipt was after expiry of agreed credit period then the amount of such realization during the present year beyond the agreed credit period should also be considered for this purpose. Hence on this issue, we restore the matter back to the file of AO/TPO for fresh decision by examining the agreement between the assessee and its AE in respect of agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpare the tainted transaction, i.e., the transaction between two related parties / AEs, with that of transactions that are carried out by independent parties on arm s length basis. If we consider the period allowed in the agreement to benchmark the transaction which is also the subject matter of the same agreement, it will lead to absurd results. We accordingly direct the AO / TPO to determine the credit period allowed by the comparable companies and treat only such trade receivables that are outstanding beyond the arm s length credit period, as international transactions. Once the above exercise has been done, we direct computation of interest for the delayed realization of trade receivable over and above the arm s length credit period till the date of its realization or the financial year end, whichever is earlier. It is ordered accordingly. Therefore, ground 15 is allowed for statistical purposes. TP adjustment on interest on outstanding receivables (Ground 16) 29. It is submitted by the learned AR that adopting a notional rate of 4.3836% for imputing interest is excessive and unreasonable. In support of the submission, the learned AR placed reliance on the judgment of the Hon b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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