9911796707
TMI Blog2024 (7) TMI 394X X X X Extracts X X X X X X X X Extracts X X X X ..... nover of only Rs. 14.53 crores under the ITeS segment. Microland Ltd., AGS Health Pvt. Ltd., Infosys BPM Services Pvt. Ltd., Access Healthcare Services Pvt. Ltd., Eclerx Services Ltd. and MPS Ltd. for failing turnover filter Deselection comparables for having different functional and risk profile as compared to the assessee - Manipal Digital Systems Pvt. Ltd.- As there are no segmental details available in respect of the various services rendered, we direct the Ld.AO/TPO to exclude this comparable from the final list. Working capital adjustment - We are of the opinion that this issue is no longer resintegra as this issue is covered by the decision of Coordinate Bench of this Tribunal in case of Huawei Technologies India (P.) Ltd. [ 2018 (10) TMI 1796 - ITAT BANGALORE] held there would remain no comparable uncontrolled transactions for the purpose of comparison. The transfer pricing exercise would therefore fail. Therefore, in keeping with the OECD guidelines, endeavor should be made to bring in comparable companies for the purpose of broad comparison. Therefore the working capital adjustment as claimed by the assessee should be allowed. Non-granting of set off of the brought forwar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource departments of clients and work with global consultants, sector associations as well as experts from national and international agencies associated with research and development, training, skill development, course accreditation or other required specializations in various sectors. 3.2 The return was selected for scrutiny assessment vide notice under Section 143(2) of the Act. The Ld. AO noted that there was international transaction between the assessee and the AE. Accordingly, the case was thereafter transferred to National e-assessment center, Delhi (hereinafter referred to as NEAC ) for being referred to the Ld.TPO to determine the arm's length price. 3.3 On receipt of the reference, the Ld.TPO called upon the assessee to furnish the economic details of the international transactions. From the details filed, it was noted that assessee had following international transactions with its AE. 3.4 The Ld.TPO noted that, the assessee had computed its margin at 19.99%. The Ld.TPO issued show cause notice to assessee proposing certain additions for which no reply was furnished. The Ld.TPO thus passed an ex-parte order and determined the net cost + margin of assessee at 4.95% b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 On receipt of the DRP directions, the Ld.AO while giving effect to the same, computed the margin of assessee at 4.95%. Rectification application u/s. 154 was filed by the assessee, as a consequent to which, the Ld.TPO passed the rectification order thereby further reducing the adjustment to Rs. 1,65,69,223/- by arriving at a net cost + margin at 12.10%. Aggrieved by the final assessment order, the assessee is in appeal before this Tribunal. 4 . The Ld.AR submitted that Ground no. 1 is general in nature and therefore do not require adjudication. 4.1 Ground no. 2 raised by assessee is challenging the impugned order passed by the jurisdictional Assessing Officer has not in compliance with the provisions of section 144B of the Act thereby making the impugned order void. 4.1.1 The Ld.AR submitted that the jurisdictional Assessing Officer erred in law in passing the final order as the case was transferred to NFAC and the draft assessment order was also passed by NFAC. It is the submission of the Ld.AR that the Ld.AO did not have the jurisdiction or validity to pass the same as the impugned order should have been passed by NFAC. Referring to clause 8 of 144B, the Ld.AR submitted that, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing study report placed at pages 23-79 of paper book Vol. 1 reveals the FAR of assessee as under: 5.2 Thus from the above, the assessee has been characterised as to be undertaking minimum risk under the ITeS segment. 5.3 The Ld.AR submitted that turnover criteria is a widely accepted filter that has a direct impact on the profit margins, economies of scale, brand value, maket share etc. It is submitted that following comparables that has more than 200 crores turnover are as not comparable with that of assessee. a) Microland Ltd. b) Tech Mahindra Business Services Ltd. c) Infosys BPM Services Pvt. Ltd. d) AGS Health Pvt. Ltd. e) Access Healthcare Services Pvt. Ltd. f) Motif India Infotech Pvt. Ltd. g) Eclerx Services Ltd. h) MPS Ltd. 5.4 In support, he placed reliance on the decisions of Coordinate Bench of this Tribunal in case of Altair Engineering India Pvt. Ltd. vs. ACIT in IT(TP)A No. 1025/Bang/2022 vide order dated 09.01.2023 for A.Y. 2018-19 and Sapa Extrusion India Pvt. Ltd. in IT(TP)A No. 791/Bang/2022 for A.Y. 2018-19. 5.5 He also referred to the decision of Hon ble Bombay High Court in case of CIT vs. Pentair Water India Ltd. in ITA No. 18/2015 by order dated 16.09.2015, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lower end for identifying the comparables. In such a situation, we are unable to understand as to why there should not be an upper limit also. What should be upper limit is another factor to be considered. We agree with the contention of the learned counsel for the assessee that the size matters in business. A big company would be in a position to bargain the price and also attract more customers. It would also have a broad base of skilled employees who are able to give better output. A small company may not have these benefits and therefore, the turnover also would come down reducing profit margin. Thus, as held by the various benches of the Tribunal, when companies which arc loss making are excluded from comparables, then the super profit making companies should also be excluded. For the purpose of classification of companies on the basis of net sales or turnover, we find that a reasonable classification has to be made. Dun Bradstreet Bradstreet and NASSCOM have given different ranges. Taking the Indian scenario into consideration, we feel that the classification made by Dun Bradstreet is more suitable and reasonable. In view of the same, we hold that the turnover filter is very ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view that turnover is a relevant criterion for choosing companies as comparable companies in determination of ALP in transfer pricing cases. There is no decision of the jurisdictional High Court on this issue. In the circumstances, following the principle that where two views are available on an issue, the view favourable to the Assessee has to be adopted, we respectfully follow the view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the ITAT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is regarding comparables for having different functional and risk profile as compared to the assessee. It is submitted that only following comparables may be considered for exclusion 1) Microland Ltd. 2) Infosys BPM Services Pvt. Ltd. 3) Manipal Digital Systems Pvt. Ltd. 4) AGS Health Pvt. Ltd. 5) Access Healthcare Services Pvt. Ltd. 6) Eclerx Services Ltd. 7) MPS Ltd. 6.1 We have already excluded Microland Ltd., AGS Health Pvt. Ltd., Infosys BPM Services Pvt. Ltd., Access Healthcare Services Pvt. Ltd., Eclerx Services Ltd. and MPS Ltd. for failing turnover filter while considering Ground no. 3 hereinabove. 6.2 The only comparable that is to be analysed on functionality therefore is Manipal Digital Systems Pvt. Ltd. 6.3 The Ld.AR submitted that the Ld.TPO considered this comparable by stating that it derives revenue from ITeS services. The DRP while upholding the view of the Ld.TPO. The Ld.AR submitted that as per the annual report of this comparable at page 505 of the paper book vol. 1, the main business software the assessee is to provide pre-press activities mainly to overseas as well as domestic customers. This company also undertakes pre- media work e-book distribution servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 313 wherein this Tribunal has held as under: 17. In the light of the above discussion we are of the view that the CIT(A) was not justified in denying adjustment on account of working capital adjustment. Since, the CIT(A) has not found any error in the TPO s working of working capital adjustment, the working capital adjustment as worked out by the TPO has to be allowed. We may also add that the complete working capital adjustment working has been given by the assessee and a copy of the same is at page 173 192 of the assessee s paper book. No defect whatsoever has been pointed out in these working by the CIT(A). We may also further add that in terms of Rule 10B(1) (e)(iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the CIT(A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
