9911796707
TMI Blog2024 (2) TMI 522X X X X Extracts X X X X X X X X Extracts X X X X ..... above decision, we are inclined to direct the TPO/AO to remove the above company from the final list of comparables. M/s Eclerx and Accentia Technologies Ltd. be eliminated as functionally different. Restricting working capital adjustment - We observe that TPO has adopted the adhoc 2% for finalizing the WCA without assigning any reasons for adopting the above said percentage. We are inclined to remit this issue back to the file of TPO to adopt the reasonable percentage on actual basis based on the data available on record. Accordingly, this ground of appeal is allowed for statistical purpose. Non-grant of TDS Credit - As considering the overall merits on the submissions made by the assessee we are inclined to remit this issue back to the file of AO with a direction to verify the records submitted by the assessee on merit as per law. It is needless to say that assessee may be given a proper opportunity of being heard. In the result, the issue under consideration is remitted back to the file of AO for statistical purpose. Computation of deduction u/s 10A - HELD THAT:- As relying on HCLTechnologies Ltd. [ 2018 (5) TMI 357 - SUPREME COURT ] we hold that the expenses excluded from the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mumbai [hereinafter in short Ld.DRP ] dated 26.09.2012 and 25.11.2016 for the A.Y.2008-09 and 2012-13 respectively, passed u/s. 144C(5) of Income-tax Act, 1961 (in short Act ). 2. Assessee and revenue have filed cross appeals for the A.Y. 2009-10, 2010-11, 2011-12 challenging the Final Assessment order and directions of the Ld. DRP. 3. Since the issues raised in all these appeals are identical, therefore, for the sake of convenience, these appeals are clubbed, heard and disposed off by this consolidated order. We are taking Appeal relating to Assessment Year 2008-09 as a lead appeal. ASSESSMENT YEAR 2008-09 ITA.No. 7603/MUM/2012 (A.Y. 2008-09) (ASSESSEE APPEAL) 4. Aggrieved with the Final Assessment order and directions of the Ld.DRP, assessee filed appeal before us raising following grounds in its appeal: - 1. determining the arm's length price of the Appellant's international transaction of provision of back end support for data analysis at Rs. 62,37,32,345 instead of Rs. 53,33,43,789 determined by the Appellant; 2. disregarding the appellant's Transfer Pricing documentation and conducting his own comparability analysis (and in this regard, obtaining the financial da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ordingly, the additional ground is dismissed as not pressed. 7. Therefore, proceeded to dispose of this appeal on merits. Brief background of the case are, Assessee has two business divisions namely (i) Ratings and (ii) Research. Under the Ratings segment, the Assessee is engaged in rendering back-end support for data analysis services to its associated enterprises through the Global Analytical Centre (GAC) which is the transaction under dispute. The Assessee had undertaken, inter-alia, international transactions of provision of back-end support for data analysis services from the GAC to its associated enterprises for ₹. 53,33,43,789/-. The Assessee adopted the Transactional Net Margin Method (TNMM') to determine the arm's length of the said international transactions. It earned a margin of operating profit to total cost (hereinafter referred to as 'margin') of 28.03% (OP/TC). In relation to this transaction, CRISIL had entered into a Master Services Agreement, dated 30 June 2004 with its associated enterprise, Standard Poor (S P), whereby S P would outsource services to CRISIL in accordance with the Statement of Work (SOW). These services are provided by CRIS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing ad-hoc working capital adjustment of 2%). Thus, the TPO made a TP adjustment amounting to ₹. 9,03,88,556/- in relation to the international transaction of provision of back-end support for data analysis services. 12. Aggrieved with the above order of Transfer Pricing Officer, assessee preferred objection before Dispute Resolution Panel and filed detailed submissions. After considering the submissions of the assessee, Ld. DRP upheld the order of the Transfer Pricing Officer and affirmed the Transfer Pricing addition. 13. Aggrieved with the above directions of Ld. DRP, assessee is in appeal before us. 14. At the time of hearing, Ld.AR of the assessee brought to our notice relevant facts relating to the Transfer pricing adjustments and contended the additions proposed by the Ld. DRP. Further, Ld.AR of the assessee filed its written submissions in support of his contentions, for the sake of clarity it is reproduced below: - 3.2 At the outset, the Appellant wishes to submit that the TPO/DRP have erred in determining the nature of Appellant s functions by placing reliance on certain ad-hoc information available in the public domain about CRISIL instead of the detailed documenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed by S P, verification and sanitization of data, maintaining a list of queries to be sent to SAP for resolution, maintaining MIS, vending Information and data to S P at pre- agreed intervals. These activities are comparatively simple and therefore the Appellant cannot be considered as aKPO. Educational / Technical Qualifications: For an activity to be considered as a KPO, the number of employees holding professional/technical qualifications as a proportion of total employees would have to be large as this would probably indicate services to be in the nature of KPO. In the instant case, it is pertinent to note that a majority of the workforce (-79%) employed by the Appellant comprises of graduates, under graduates and diploma holders. Thus, the workforce is on the lower end of the technical spectrum, which further demonstrates that the Appellant is engaged in providing low-end support services and therefore cannot be characterised sa KPO 3.6. Based on the above, the Appellant has classified itself as a provider of low-end support services and not High-end services as contended by the Ld. TPO. 3.7 Without prejudice to the above, even if it is assumed that the Appellant is providin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... similar. Their business environment would be entirely different, the demand and supply for the services would be different the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous. 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to. 7. This now virtuall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given effect to in the financial statements as reflected on page no. 457 of the paperbook. Therefore, there is an extra-ordinary event during the year under consideration and for this reason as well, Mold-Tek cannot be considered as a comparable to the Appellant. 4.4 In addition to the above, Mold-Tek has also completed the acquisition of the Crossroads Detailing Inc., a USA based company during the year w.e.f. 28 April 2007. The acquisition of Crossroads Detailing Inc. USA has enabled Mold-Tek to enter into high rise buildings and commercial buildings space, which has resulted in about 56.49% growth in Financial Year 2007-08. This is an extra-ordinary event during the year under consideration and for this reason also, Mold-Tek cannot be considered as a comparable to the Appellant. (refer pg. nos. 426 and 429 of the paper book) Provision for loss on derivatives of Rs. 6.43 crores 4.5 It is also pertinent to note that the company has created a provision for loss on derivatives of Rs. 6.43 crores (approx. 36% of its total revenue) which is of abnormal nature. The TPO has treated the same as non-operating expense, which has resulted in a high margin of 96.6%. If the same were to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsferee company (the aforementioned company) AND the demerger between Mold- Tek Technologies Ltd, ie the demerged company (the aforesaid company) and Mold-Tek Plastics Ltd, resulting company was sanctioned by the Hon'ble High Court of Andhra Pradesh, vide its order dated 2th July, 2008. The appointed data for amalgamation and the demerger were 1st October, 2006 and 1st April, 2007, respectively, and the effective date of the scheme was 26 th August, 2008. In our considered view, pursuant to the aforesaid restructuring of the aforementioned company ie Mold-Tek Technologies Ltd., the same could not have been adopted as a comparable for benchmarking the international transactions of the assessee for the year under consideration. In fact, we find, that a similar view had been taken by the ITAT, Mumbai, in the case of Dialogic Networks (1) P. Ltd. Vs. ACIT, Circle 3(3). Mumbai [ITA No. 7280/Mum/2012, dated 27.07.2018). In the aforesaid case, the Tribunal had concluded that pursuant to the restructuring of the aforesaid company ie Mold-Tek Technologies Ltd. in A.Y 2008-09, it could not have been considered as a comparable. Also, we find that the aforementioned comparable is even othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s mainly involved in providing low-end services. On the basis of our aforesaid observations, we are of a strong conviction that in the backdrop of the high-end services provided by the aforementioned company i.e Mold-Tek Technologies Ltd, it could safely be held to be functionally dissimilar to the assessee company, which was providing business support services (ITCS) to its group entities across the world. Accordingly, we find ourselves to be in agreement with the claim of the Id. A.R. that in the backdrop of the functional dissimilarity also the aforementioned company ie Mold-Tek Technologies Ltd., could not have been included in the final list of the comparables for the purpose of benchmarking international transactions of the assessee company for the year under consideration. 8.3 On the basis of our aforesaid observations and the reasons given hereinabove, we are of a strong conviction that the aforesaid company i.e Mold-Tek Technologies Ltd could not have been selected as a comparable for benchmarking the International transactions of the assessee company. Accordingly, we herein direct the A.O to exclude the aforesaid company ie Mold-Tek Technologies from the final list of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a unique year for Mold-Tek Technologies Ltd. as the scheme of arrangement involving amalgamation between Tekmen Tool Pvt. Ltd. and Mold- Tek Technologies Ltd. and demerger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble AP High Court by 15th July, 2008 with the appointed date for amalgamation and de-merger being 1 October, 2007 and 1st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of Rs. 6.43 crores made by Mold-Tek technologies Ltd. was excluded by the A.O. treating the same as non-operating expenses whereas in the ease of Rushabh Diamonds(supra), it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. 82. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions.... We devise innovative and relevant solutions that address common pain points for the industry, and implement these solutions through our scalable delivery model... 5.4 In view of the above, it can be seen that Eclerx is a Knowledge Processing Outsourcing company providing a unique blend of consulting services along with process outsourcing. It provides consulting services, devises innovative solutions for its clients and uses a scalable delivery model which makes it efficient and cheaper for them to deliver. In comparison, the Appellant is engaged only in providing support services for financial data analysis and does not do consulting services or provide complete business solutions like that of Eclerx and therefore, Eclerx is functionally different than the Appellant and therefore cannot be considered as a comparable to the Appellant. 5.5 As evident from the extracts reproduced above, Eclerx provides a diversified set of services for which no segmental data is available and, hence, in the absence of said segmental data, Eclerx cannot be said to be comparable to the assessee. (Kindly refer Pg. 408 of the paperbook) High proportion of Outsourcing of work: 5.6 Without preju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... phic region. Also, the acquisition of Igentica Travel Solutions Ltd. had given the company an entry platform in a new vertical travel and hospitality besides consolidating its position in the retail and manufacturing space. As the aforesaid company pursuant to the acquisition of Igentica Travel Solutions Ltd. on July, 2007 had witnessed an abnormal profit of 65.88% during the year under consideration, therefore, in our considered view it could not have been selected as a comparable for benchmarking the International transactions of the assessee for the year under consideration. 9.2 Further, a perusal of the financial results of the aforesaid company, Page 12 of APB, therein reveals that it had outsourced services to third party vendors which therein constituted 20.39% of its total expenses. The aspect that when a company had outsourced its ITeS services, it cannot be said that its business results would be comparable to any other ITeS service provider rendering services entirely on its own, had been so held by a coordinate bench of the Tribunal in the case of Google India Pvt. Ltd. Vs. DCIT [ITA No. 1368/Bang/2010). Considering the outsourcing of services to the extent of 20.39% of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid functional profile of the abovementioned company ie Eclerx Services Ltd, the Tribunal was of the view that as the said company was mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field, thus, it could not be compared that the assessee before them which was mainly into providing of low-end services to its group concerns. In the backdrop of the functional profile of the aforementioned company i.e Eclerx Services Ltd., we find that beyond any scope of doubt it is functionally dissimilar to the assessee before us, which is engaged in providing of business support services (ITES) to its group entities across the world. Accordingly, due to the functional dissimilarity of the aforesaid company i.e., Eelerx Services Ltd, the same could not have been included in the final list of comparables for benchmarking the assessee's International transactions. 9.4. On the basis of our aforesaid observations, we herein direct the A.O to exclude the aforementioned company ie Eclerx Services Ltd. from the final list of comparables for the purpose of benchmarking the international transactions of the assessee for the year under cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 83. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pot. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the Ld. Ld. DRP. (emphasis supplied) 5.11. The Hon'ble Delhi ITAT in case of Copal Research India Pvt. Ltd. us. ITO in itaпо. 1713/Del/2014 also has held that Eclerx is not comparable as it provides complete business solutions as compared to the Appellant which provides raw data. The relevant extract of the decision is reproduced hereunder for Your Honors' ready reference (Para no. 11-12, Pg. no. 8-16): 11. We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, we are of the view that this company is also mainly engaged in providing high-end services involving specialized knowledge and domain expertise in the field and the same cannot be compared with the assessee company which is mainly engaged in providing low-end services to the group concerns. 11.1. We find that the assessee also cannot be said to have relatable degree of comparability because primarily assessee was engaged in providing primary data for various field of activities but not complete business solutions. Therefore, this company could not be treated as comparable for the purpose of determining ALP of the transactions between the assessee company with its AEs. We, accordingly, direct that this company be excluded from the list of comparables finally taken by the AO/ TPO as per the direction of the DRP. (emphasis supplied) 5.12. The aforesaid decision of the Hon'ble Tribunal has been affirmed by the Hon'ble Delhi High Court in . . 894/2015 vide order dated 23.11.2015 (Para 2, Pg. no. 2) 5.13. The said decision of the Hon'ble Mumbai Tribunal has also been followed in cases cited below: PCIT vs. B.C. Management Services P. Ltd. [2018] 89 taxmann.com 68 (Del HC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt. Ltd., in ITA No. 417/2016 dated 05.08.2016 (Copy of the order is placed on record). 17. Considered the rival submissions and material placed on record, we observe that the assessee a group concern of the S P, which also does the similar nature of business in the line of financial ratings to the various establishments. S P does the rating in the global level with the back office assistance of the assessee. The assessee itself does the similar rating in the Indian market. The nature of providing services are similar and however the assessee has provided the relevant SOW to demonstrate that the nature of work involved is based on the structured and process oriented. There is no involvement of human intelligence or technical skill. It is mere data compilation and submission to its AE. This will not fall within the category of KPO. After careful consideration, we are of the view that there is fine line difference between the BPO and KPO. It is difficult to determine the involvement of human intelligence or skills in the set of process or activities. It is subjective and need proper analysis of process of work and in this case, the activities carried on by the assessee and the paren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ek Technologies Ltd. and demerger between Mold-Tek Technologies Ltd. simultaneously was sanctioned by the Hon'ble Andhra Pradesh High Court by 15 th July, 2008 with the appointed date for amalgamation and de-merger being 01 st October, 2007 and 01 st April, 2007 respectively. It is also pertinent to note that while working out the operating margin of the said company, provision for derivative loss of ₹. 6.43 crores made by Mold-Tek technologies Ltd. was excluded by the Assessing Officer treating the same as non-operating expenses whereas in the case of Rushabh Diamonds (supra), it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. Therefore, respectfully following the above decision, we are inclined to direct the TPO/AO to remove the above company from the final list of comparables. 20. Coming to the next comparables i.e., M/s Eclerx, we observe that the Coordinate Bench of this Tribunal in the case of Deutche CIB Centre (P.) Ltd. v. ACIT IT (TP) Appeal No. 134 of 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut. Ltd. Vs. ACIT, Circle- 6(3), Mumbai, (ITA No. 7466/Mum/2012, dated 07.03.2014]. It was observed by the Tribunal, that a perusal of the annual report of the aforesaid company Le Eclerx Services Ltd. for the year under consideration ie F.Y.2007-08, therein revealed, that the said company was in the business of providing data analytics and data process solutions to some of the largest brands in the world and was recognized as experts in chosen markets-financial services, retails and manufacturing. It was observed by the Tribunal, that the aforesaid company was providing complete business solutions by combining people, process improvement and automation and had employed over 1500 domain specialists working for the clients. It was observed, that the aforesaid company was providing industry specialized services for meeting complex clients needs, data analytics KPO service provider specialising in two business verticals - financial services and retail and manufacturing. It was stated to be engaged in providing solutions that not only just reduced cost, but helped the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analyties, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that the company has a team ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to some of the largest brands in the world and is recognized as experts in chosen markets- financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. t is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO service provider specializing in two business verticals financial services and retail and manufacturing. It is claimed to be engaged in providing solutions that do not just reduce cost, but help the clients increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. M/s eClerx Services Pvt. Ltd. is also claimed to have a scalable delivery model and solutions offered that include data analytics, operations management, audits and reconciliation, metrics management and reporting services. It also provides tailored process outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. It is claimed that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctionally similar. Their business environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous.... 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to. 7. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssioner of Income Tax (OSD)-B(1), Mumbai ('The AO')/ Joint Commissioner of Income tax, Transfer Pricing-1(4). Mumbai (The TPO) under the direction of Dispute Resolution Panel (DRP') erred in upholding the action by including certain companies which were functionally not comparable and excluding/ rejecting certain companies which were functionally comparable and thereby making a transfer pricing adjustment of Rs. 8,10.51,139 to the Appellant's international transaction of provision of financial data analysis services. 2. On the facts and circumstances of the case and in law the AO/ TPO under the direction of DRP erred in: a. disregarding the Appellant's Transfer Pricing documentation and conducting his own comparability analysis (and in this regard, obtaining the financial data of certain potential comparables using his powers under Section 133(6) of the Act) which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations, b requiring financial data of only the current year (FY 2008-09) of the comparable companies to be used for benchmarking the Appellant's international transactions: not granting a working capital a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of the Ld. DRP, for the sake of clarity it is reproduced below:- Eclerx Services Ltd. ('Eclerx') 10.1 The Appellant submits that the contentions of the Appellant vis- -vis AY 2008-09 would be applicable for the current year, AY 2009-10 also and therefore, the Appellant prays that on account of the reasons as mentioned above, Eclerx be excluded from the list of comparable companies. (Kindly refer pgs. 471-474, 508, 516 and 519 of the paper book) 11. Accentia Technologies Ltd. (Accentia) Functionally different: 11.1 Accentia is engaged into provision of Healthcare Receivables Cycle Management (HRCM) services and software products for business process outsourcing. (Kindly refer pg. 594-596 of the paper book). It provides the following HRCM services Medical transcription, medical coding, medical billing, receivables management. Further, the Appellant now aims to offer services like Data Process Outsourcing services and Legal Transcription services comprising of legal transcription, legal coding, legal claims processing, legal document review, legal research and writing, drafting of pleadings and briefs etc. (Kindly refer pg. 566 and 598-600 of the paper book). 11.2. Further, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his company cannot be considered as comparable. Accordingly, the same is directed to be excluded from the final list of comparables (emphasis supplied) 11.7. The aforesaid decision of the Hon'ble Delhi Tribunal has been affirmed by the Hon'ble Delhi High Court in ITA No. 813/2015 vide order dated 20 October 2015 (Para 3-4. Pg. no. 2). Further, the Hon'ble Bombay High Court in CFT vs. PTC Software Bom HC-ITA 598/2016 has also upheld that Accentia cannot be considered as a good comparable. 11.8. Reliance is placed on the following decisions to support the aforesaid submission of the assessee: DCIT vs. Swiss Re-services India P. Ltd. Mum Trib. ITA Nos. 1465 1493/Mum/2014 (Para no. 8(e), Pg. nos. 7-8) BNY Mellon International Operations (India) (P.) Ltd. vs. DCIT [2015] 55 taxmann.com 386 (Pune -Trib.) (Para 11, Pg. no. 6) upheld by the Hon'ble Bombay High Court in ITA No. 1226/ 2015 vide order dated 23.04.2018 (Para 5, Pg. no. 2)-AY 2009-10 11.9. Based on the above factual and legal submissions, the assessee humbly prays that Accentia be excluded from the set of comparable companies. 12. Working Capital Adjustment 12.1. The Appellant humbly submits that differences in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Accentia Technologies Ltd., we hold that this company cannot be considered as comparable. Accordingly, the same is directed to be excluded from the final list of comparables 33. The aforesaid decision of the Delhi Tribunal has been affirmed by the Hon'ble Delhi High Court in ITA No. 813/2015 vide order dated 20.10.2015. Further, the Hon'ble Bombay High Court in CFT v. PTC Software (I) Pvt. Ltd., in ITA 598/2016 has also upheld that Accentia Technologies Ltd., cannot be considered as a good comparable. 1. This Appeal under Section 260-A of the Income Tax Act, 1961 (the Act), challenges the order dated 31st October, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal). The impugned order dated 31st October, 2014 is in respect of Assessment Year 2009-10. 2. Revenue urges only the following questions of law, for our consideration: (a) Whether on the facts and in the circumstance of the case and in law, the Tribunal erred in excluding KALs Information Solutions Ltd., from the list of comparables on the basis of previous years documentations of the assessee without verifying the functions performed by the comparables in the year under consideration? (b). Whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Thus, not comparable. The above finding of fact is not shown to be perverse. (v). In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained. 34. Respectfully following the above decisions, we are inclined to allow the grounds raised by the assessee and direct the TPO to eliminate the comparables, Eclerx Services Ltd., and Accentia Technologies Ltd., from the final list comparables for this assessment year. 35. With respect of working capital adjustment, the facts in this assessment year also similar to AY 2008-09, accordingly we direct TPO to determine the WCA based on the actual data available on record. Accordingly, this ground of appeal also allowed for statistical purpose. 36. With regard to Ground No.3 which is in respect of adjustment of expenses incurred in foreign currency reduced from export turnover and total turnover while computing deduction under section 10A of the Act, Ld.AR of the assessee submitted that this ground is not pressed, accordingly, the same is dismissed as not pressed. 37. With regard to Ground No. 4 which is in respect of non-grant of TDS Credit, considering the overall merits on the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as whether the Tribunal was correct in holding that while computing relief under Section10A of the IT Act, the amount of communication expenses should be excluded from the total turnover if the same are reduced from the export turnover? While giving the answer to the issue, the High Court, inter-alia, held that when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to it, the said ordinary meaning is to be in conformity with the context in which it is used. Hence, what is excluded from export turnover' must also be excluded from total turnover', since one of the components of total turnover' is export turnover. Any other interpretation would run counter to the legislative intent and would be impermissible. 18. Accordingly, the formula for computation of the deduction under Section10A of the Act would be as follows: Export Profit = total Profit of the Business X Export turnover as defined in Explanation 2 (IV) of Section 10A of IT Act / Export turnover as defined in Explanation 2(IV) of Section 10A of the IT Act + domestic sale proceeds 19. In the instant case, if the deductions on freight, telecommunication and insurance att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred in: a. upholding the action by including certain companies which were functionally not comparable, b. excluding/rejecting certain companies which were functionally comparable c. disregarding the Appellant's Transfer Pricing documentation and conducting his own comparability analysis (and in this regard, obtaining the financial data of certain potential comparables using his powers under Section 133(6) of the Act) which is not in accordance with the contemporaneous documentation requirement of the Indian TP regulations; d. requiring financial data of only the current year (FY 2009-10) of the comparable companies to be used for benchmarking the Appellant's international transactions; e. not granting a working capital and risk adjustment to the Appellant to account for the differences in the risk profile of the comparables vis-a vis the Appellant; It is prayed that the aforesaid adjustment should be deleted. 3. On the facts and in the circumstances of the case and in law, the Ld. AO under the directions of the Dispute Resolution Panel ('DRP') erred in reducing expenses incurred in foreign currency, not being expenses incurred in providing technical services outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34A of the Act as the same is erroneous and unwarranted. 7. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B and 234C of the Act. The appellant prays that the AO be directed to re-compute interest under section 234A, 234B and 234C of the Act as a consequence of the above grounds. 47. Ground Nos. 1 and 2 are similar to Ground Nos. 1 and 2 of grounds of appeal raised by the assessee for the A.Y. 2009-10 and the decision taken therein shall apply mutatis-mutandis to the appeal for the A.Y.2010-11. We order accordingly. 48. With regard to Ground No. 3, at the time of hearing, Ld.AR of the assessee submitted that this ground is not pressed, accordingly, the same is dismissed as not pressed. 49. With regard to Ground No. 4 which is in respect of disallowance under section 14A of the Act, brief facts relating to the ground are, for the assessment year under consideration, assessee has earned a dividend income of ₹. 1,77,31,980/-. However, out of the above, Dividend income amounting to ₹. 7,47,500/- has been received from Gas Strategies Group Limited, a foreign company and the same has been offered to tax by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given clear findings that the disallowance u/s 14A is restricted only to the extent of exempt income earned and the investments to be considered for making disallowances are only on those investments which has actually earned the dividend. So far as disallowance of other administrative expenditure is considered, it is observed that Hon'ble Delhi ITAT in the case of Vireet Investment Pvt. Ltd. [165 ITD 27] has held as under: Section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules, 1962 - Expenditure incurred in relation to exempt income not includible in total income - Assessment year 2008-09 - Whether only those investments are to be considered for computing average value of investment which yielded exempt income during year - Held, yes [Para 11.16] 54. The above referred decision has been followed by co-ordinate Bench in the case of DCIT v. Shree Global Trader in Ltd. in ITA No. 1374/Mum/2022 dated 22nd December, 2022 has held as under: 11. Having heard the rival submissions and perused the materials available on record. It is observed that the assessee has made a suo moto disallowance of Rs. 1,263/- for which the assessee contends that the A.O. ough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e yielded exempt income during the impugned year. 55. Considering the finding given by Coordinate Benches, the Assessing Officer is directed to re-work disallowance u/s.14A under rule 8D(2)(iii) by adopting only those investments which has yielded exempt income. The assessee gets the relief accordingly. This ground of appeal is partly allowed. 56. With regard to Ground Nos. 5, 6 and 7, we observe that these grounds are consequential in nature, accordingly, these grounds are dismissed as such. 57. In the result, appeal filed by the assessee is partly allowed. 58. ITA No. 843/MUM/2015 (A.Y. 2010-11) (REVENUE APPEAL) 59. Revenue has raised following grounds in its appeal: - 1. Whether, on the facts and circumstances of the case and in law, the Hon'ble DRP was justified in holding that for the purpose of deduction/exemption u/s 10A, the expenses incurred in foreign currency in providing technical services outside India do not have an element of turnover and these expenses have to be excluded from the total turnover particularly in the absence of a legislature prescription to the contrary? The appellant prays that the order of the DRP-II, Mumbai on the above grounds be set aside and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n under section 10A and section 10AA of the Act. This has resulted in disallowance of Rs. 15,71,878. The appellant prays that the disallowance of Rs. 15,71,878 made under section 10A and section 10AA of the Act is erroneous, unwarranted and be deleted. 4. On the facts and in the circumstances of the case and in law, the AO under the directions of the DRP erred in disregarding the suo motu disallowance of Rs. 414,324 made by the appellant under section 14A of the Act, in applying Rule 8D(2)(iii) of the Income-tax Rules, 1962 (the Rules). The appellant prays that the additional disallowance be deleted. Without prejudice to the above, on the facts and in the circumstances of the case and in law, the AO under the directions of the DRP has legally erred in computing the disallowance under section 14A of the Act read with Rule 8D(iii) of the Rules as one-half percent of the average value of total investments as against one-half percent of the average value of the investments, income from which does not or shall not form part of the total income. Accordingly, the appellant prays that the AO be directed to re-compute the disallowance under section 14A of the Act read with Rule 8D(iii) of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat for the purpose of deduction/exemption u/s. 10A, the expenses incurred in foreign currency in providing technical services outside India do not have an element of turnover and these expenses have to be excluded from the total turnover particularly in the absence of a legislature prescription to the contrary? 70. Coming to the appeal relating to A.Y. 2011-12, since facts in this case are mutatis mutandis, therefore the decision taken in A.Y. 2009-10 in revenue appeal are applicable to this assessment year also. Accordingly, appeal filed by the revenue is dismissed. 71. In the result, appeal filed by the revenue is dismissed. ASSESSMENT YEAR 2012-13 ITA No. 1345/MUM/2017 (A.Y. 2012-13) (ASSESSEE APPEAL) 72. Assessee has raised following grounds in its appeal: - 1. On the facts and circumstances of the case and in law, the Hon'ble Dispute Resolution Panel (DRP) erred in upholding the action of the Ld. Assistant Commissioner of Income Tax-9(2)(2), Mumbai (AO)/ Joint Commissioner of Income tax, Transfer Pricing- 1(1), Mumbai (TPO) in making an adjustment of Rs. 13,65.09,673 to the provision of back end support for financial data analysis services by the Appellant to its associat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, the AO erred in not granting credit of tax deducted at source of Rs. 28,09,064. 6. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234B of the Act. 7. On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest under section 234C of the Act. 73. Ground Nos.1 to 3 are relating to Transfer Pricing Adjustment in relation to financial data analysis services, we observe that this ground is similar to Ground Nos. 1 to 6 of grounds of appeal raised by the assessee for the A.Y. 2009-10 and the decision taken therein shall apply mutatis- mutandis to the appeal for the A.Y. 2012-13. 74. Further, Ld.AR of the assessee submitted that for the year under consideration, there is a new comparable selected by the TPO i.e, TCS E- Serve and prayed to exclude from the final list of comparables. He relied on the decision of the Coordinate Bench in the case of Integreon (India) Pvt. Ltd., v. DCIT in ITA No. 1277/Del/2017 dated 31.08.2020. 75. On the other hand, Ld. DR relied on the order of the lower authorities. 76. Considered the rival submissions and material placed on record, we observe that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the said order in B.C. Management Services P.Ltd.(supra), the Revenue filed an appeal before the Hon ble High Court and the question of law raised was as under:- 1. Whether the exclusion of four comparables i.e. e-ClerxPvt.ltd., M/s ICRA Techno Analytics Ltd., M//s. TCS E-Serve Ltd. and M/s. Accentia Technologies Pvt.ltd., are sustainable and not erroneous? 10. The Hon ble Jurisdictional High Court dismissed the appeal of the Revenue observing as under:- The third comparable that the AO/TPO excluded is TCS E-serve. The ITAT observed that though there is a close functional similarity between that entity and the assessee, however, there is a close connection between TCS E-serve and TA T A Consultancy Service Ltd. which was high brand value; that distinguished it and marked it out for exclusion. The ITAT recorded that the brand value associated with TCS Consultancy reflected impacted TCS E-serve profitability in a very positive manner. This inference too in the opinion of Court, cannot be termed as unreasonable. The rationale for exclusion IS therefore upheld. 11. The Hon ble High Court thus was of the view that where TCS e-serve Ltd. has high brand value then it cannot be selected as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the case of Gem Plus Jewellery India Ltd. (Supra) and held that the expenses excluded from the export turnover have to be excluded from the total turnover as well while computing deduction u/s 10A of the Act. 80. Considered the rival submissions and material placed on record, we observe from the record that Assessing Officer has not followed the directions of Ld DRP in granting the benefit to the assessee that the foreign currency expenses which are excluded from Export turnover and not excluded from Total turnover. In our view, it is settled position of law that the expenses which are excluded from the export turnover has to be excluded from the total turnover also as held in the case of HCL Technologies Ltd (supra). Accordingly, we direct the Assessing Officer to exclude the expenses from the Total turnover also while determining the exemption u/s 10A of the Act. 81. With regard to Ground No. 5, which is in respect of non-grant of TDS credit, considering the overall merits on the submissions made by the assessee we are inclined to remit this issue back to the file of Assessing Officer with a direction to verify the records submitted by the assessee on merit and as per law. I ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
