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TMI Blog2024 (7) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... n making a Transfer Pricing addition of Rs. 19,48,67,226 to the Appellant's income and thereby determining a total / income of Rs. 49,99,97,800 and the said addition being wholly unjustified are liable to be deleted. B. Transfer Pricing 2. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO in rejecting the transfer pricing analysis / study prepared by the Appellant, without appreciating that none of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied. 3. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred and the Hon'ble DRP further erred in upholding the action of the Ld. TPO in confirming the application/ incorrect application of the following filters: * Rejection of companies with different financial year ending; * Rejection of companies with export revenue less than 75% of the total revenue; * Rejection of companies with peculiar economic circumstances. 4. On the facts and circumstances of the case and in contrary to law, the Ld. TPO erred in and the Hon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Systems International Limited * Tata Consulting Engineers Limited 9. Without prejudice to the above grounds on rejection of functionally dissimilar comparable companies, on the facts and circumstances of the case and in contrary to law, the Ld. TPO erred by incorrectly computing the margin of following comparable companies: * Microland Limited * Jnfosys BPO Limited * SPI Technologies India Private Limited * MPS Limited 10. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred by not restricting the transfer pricing adjustment only to the associated enterprise segment and making adjustment on overall entity level. 11. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred and the Hon'ble DRP further erred in upholding / confirming the action of the Ld. TPO, in considering outstanding receivable as a separate and distinct international transaction and further erred in making transfer pricing adjustment in the nature of notional interest on receivables amounting to Rs. 2,80,004. 12. On the facts and circumstances of the case and in contrary to law, the addition made by the Ld. TPO with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rification of the information filed/submitted, Assessing Officer completed the assessment. 3.1. During the course of assessment, it was observed that assessee company had entered into international transactions during the previous year relevant to A.Y. 2016-17 to an extent of Rs. 169,15,84,033/-. Hence, a reference was made to the TPO for determining Arm's length price u/s 92CA of the Act. Thereafter, the case was referred to the Transfer Pricing Officer (TPO), who passed order u/s 92CA(3) of the Act on 30.10.2019. The TPO proposed the adjustment of Rs. 19,45,87,222/- in the IT-enabled services of the tax payers international transactions and Rs. 2,80,004/- under interest on receivables outstanding u/s 92CA of the Act. Accordingly, draft assessment order u/s 143(3) r.w.s. 144C of the Act and section 92CA of the Act had been passed on 18.11.2019 interalia making an addition of TP adjustment of Rs. 19,48,67,226/- to the total income of the assessee and thereby determined the assessed income at Rs. 49,99,97,796/-. 3.2. Aggrieved with such draft assessment order, assessee raised objections before the DRP, Bengaluru on 16.12.2019, who after hearing the AR of the assessee and examinati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out. 6. We have heard the rival submissions and perused the material on record on the preliminary issue agreed by both the parties mentioned hereinabove. The TPO in his order dt.30.10.2019 has classified the assessee as ITeS and Para 3 and 3.1 of the order reads as under : "3. As per the Transfer Pricing (TP) document furnished for the F.Y. 2015-16, the taxpayer company has entered into the following international transactions with its Associated Enterprises (AEs) : ASSOCIATED ENTERPRISES NATURE OF INTERNATIONAL TRANSACTIONS AMOUNT IN RS. Hyundai Motor Company Provision of ITES 1131581522 Kia Motor Corporation Provision of ITES 520852358 Hyundai Auto Ever Corporation Purchase of asset 28874264 Hyundai Motor Company Reimbursement of expenses paid 4352795 Hyundai NGV Company, Korea Reimbursement of expenses paid 1412571 Hyundai Motor Company Reimbursement of expenses paid 147674 Hyundai Motor Company Trade receivables 124477789 Kia Motor Corporation Trade receivables 79021142 Hyundai Auto Ever Corporation Payables 13758850 3.1. As per the TP document filed by the taxpayer, economic analysis as prepared by the taxpayer is summarized as below : Natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee-company which is categorised as a KPO company, being in engineering business process services. The Co-ordinate Bench in the case of Exevo India Pvt. Ltd., Vs. ITO in ITA No.907/Del/2016 (AY.2011- 12) dt. 25-07-2016 (supra) has considered this comparable and excluded by stating as under: "Accentia Technologies Ltd. 4.1. Ld.TPO considered this as a comparable. Assessee objects to the compatibility of this company is due to functional incompatibility. Ld.AR submitted that this company was having supernormal profit and is engaged in providing KPO services which is distinct from the nature of services provided by the assessee before us. He has placed reliance upon the decision of coordinate benches of this tribunal in the case of M/s.Capital IQ Information Systems (India) Pvt. Ltd. Vs. DCIT in ITA No. 1961/H/2011 and Symphony Marketing Solutions India Pvt. Ltd., in ITA No. 1316/BANG/2012, wherein the dissimilarities between KPO services and BPO service has been drawn up. He further contended similar view has been upheld by the Hon'ble jurisdictional High Court in the case of Rampgreen Solutions Pvt. Ltd., vs. CIT in ITA 102/2015. 6.2. Ld. DR, however, referred to extracts f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port of the company, it is engaged in the provision of services in business units of financial services and sale and marketing support. It was also further submitted that there was an extraordinary events as a subsidiary company of Eclerx Services Limited was wound-up. It has super normal profits during the year and cannot be compared to assessee-company. It was further submitted that this company was rejected in assessee's own case for AY. 2008-09 to 2010-11 on :- 10 -: I.T.A. Nos.128 & 216 /Hyd/2016 functionally dissimilar and peculiar economic circumstances. Ld. Counsel relied on the orders in earlier year. 9.8. We have perused the rival contentions and the documents placed on record. Assessee raised the similar contentions before the DRP and DRP vide it order in pg. 12 has considered as under: "Having considered the submission, we are of the view that the engineering design services provided by the assessee is comparable to the services provided by the above company. Further, in the safe harbor guidelines issued by the CBDT, engineering design services have been considered under KPO. Further, the objection in regard to the exclusion of the company due to high profit is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether the bad debts were non-operating expenses and TPO has not followed the guidelines on the issue. 9.11. We have considered the rival contentions and perused the documents placed on record. Assessee has raised the same objections before DRP which gave a finding that the engineering design services being rendered by assessee are akin to KPO services of the above company. It further considered that functional comparability need to be decided on the basis of the information available in the annual report and not based on the website information which may vary and may not be reliable. It was further noted that in the case of M/s. Excellence Data Research Pvt. Ltd., in ITA No. 159/Hyd/2015, the ITAT rejected the objection of assessee for exclusion of above company noting that the annual report refers only service and is in the pay roll service activity. Thus, stating DRP rejected assessee's objections. We do not find any reason to interfere with the said objections as the very basis of the contentions are based on the website information but not on the annual report. However, the DRP has directed the TPO to verify the margin which assessee submits that has not been considered. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including opportunities for cross-selling services across our combined customer base. The acquisition also adds delivery capability in Chandigarh - now our third location after Mumbai and Pune in India, and brings an additional 1,000 people into the eClerx family". By this acquisition, the financials are not reliable. He relied on the following cases: 1. Exevo India Pvt. Ltd., Vs. DCIT, ITA No. 20/Del/2017 - AY 2012-13 2. Fractal Analytics Pvt. Ltd., Vs. ACIT, ITA No. 1024/Mum/17 3. S&P Capital IQ Pvt. Ltd., ITA No. 200 & 435/hyd/2016 4. Hyundai Motor India Engg. Pvt. Ltd. 5. Hyundai Motor India Engg. Pvt. Ltd., ITA No. 128/Hyd/2016 & 216/Hyd/2016 6.2 Ld. DR, on the other hand, relied on the orders of revenue authorities. 6.3 Considered the rival submissions and perused the material on record. As per the submission of ld. AR, this company has acquired new entity. Agilyst Inc, USA and it is extraordinary event. By further relying on the case law Exevo India Pvt. Ltd. (supra), he submitted that this company cannot be compared. We cannot agree with the submission of the counsel on this aspect as this company acquired new company in USA, how it will have an impact on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roviding only ITeS services (BPO). He further led us to the AE agreement, wherein it is seen that no software development services are provided nor were any research services provided by the assessee and the assessee is also not rendering all the services specified in the agreement, but only CAE and CAE testing support services are provided. He submitted that the assessee company was established in the year 2007 in India and from the AY 2008-09 onwards, the assessee has been held to be an ITeS (BPO) company till AY 2010-11 and only in the AYs 2011-12 and 2012- 13, the ITAT has held this company to be comparable to E-Clerx Ltd which is a KPO. He submitted that again in the AY 2013-14 and 2014-15 the assessee has been held as ITeS by the TPO as well as the DRP. Therefore, he submitted that it is necessary to go into the actual nature of work carried on by the assessee to hold whether the assessee is an ITeS company or a KPO. He submitted that the assessee's business falls within the ambit of Rule 10TA(e) of the Act and not under 10TA (g) of the Rules. He tried to distinguish the ITeS service from KPO service by submitting that the KPO requires Domain Expertise, Advance Analytical Ski ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and major functions are borne by the AE. He submitted that both the TPO as well as the DRP have considered the assessee as an ITeS company only and therefore, it cannot now be held to be a KPO. He also drew our attention to page 946 of the paper book which is "notes forming part of the financial statements for the year ending March, 2014" wherein the corporate information is given and it is stated that the company located in Hyderabad, was primarily engaged in research & development focussed design engineering and quality enhancement and provides back end operations like computer aided engineering and computer aided design etc. He submitted that this sentence is not included in inter-company agreement with AE. He has also drawn our attention to the ITAT orders in the assessee's own case for the earlier AYs wherein for the AY 2008- 09 to 2010-11, the assessee has been held to be ITeS and E-Clerx Ltd has been directed to be excluded on account of functional dissimilarity and an extra ordinary event. He submitted that only for the AY 2011-12 and 2012-13 the assessee has been held to be comparable with E-Clerx Ltd which is a KPO. He therefore, tried to distinguish the said decisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, The TPO has himself has not taken E- Clerx Ltd as a comparable for the AY 2013-14. Therefore, we direct the TPO/AO to exclude this company from the final list of comparables to the assessee." 10. From the reading of the above said three decisions of the Tribunal, it appears that there is inconsistency in the adjudication of this issue. The Tribunal in the case of the assessee for A.Ys. 2011-12 and 2012-13, treated the assessee as TPO/KPO whereas while deciding the appeal for A.Y. 2014-15, the Tribunal had deleted the E-Clerks on the premise that the assessee is not a KPO / ITeS. In our considered opinion, though the TPO in his order has mentioned that the assessee is a ITeS, however, the issue is required to be examined afresh by the TPO on the basis of the agreements entered by the assessee with its AEs and functions performed. The TPO shall examine the work profile of the assessee vis-à-vis it's A.E. and the qualifications and experiences of employees / work force engaged by the assessee in discharging its duties pursuant to the contracts entered with its A.E. and remuneration paid. Based on the above said data, the TPO shall adjudicate and decide whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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