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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 ..... ation paid. Based on the above said data, the TPO shall adjudicate and decide whether the assessee is a ITeS / KPO / high end BPO or merely low end BPO after following due process of law and decide the Arms Length Price afresh after providing the opportunity of hearing to the assessee, in accordance with law. The assessee is directed to produce all the documents / submissions before the TPO to substantiate its case that the assessee is not KPO / ITeS. Appeal of the assessee is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... confirming the action of the Ld. TPO in not allowing risk adjustment in accordance with the provisions of Rule 10B of the Rules to account for differences between the international transactions undertaken by the Appellant, being a captive unit, and those undertaken by the alleged comparables. 7. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO has erred and Hon'ble DRP further erred in upholding / confirming the action of Ld. TPO in accepting following companies though they are functionally not comparable, earning high margins due to extraordinary events, fails the Ld. TPO's own filters and having presence of brand: • Microland Limited • Crossdomain Solutions Private Limited • Tech Mahindra Business Services Limited • Infosys BPO Limited • SPI Technologies India Private Limited • Eclerx Services Limited • MPS Limited 8. On the facts and in the circumstances of the case and in contrary to law, the Ld. TPO erred and Hon'ble DRP further erred in upholding / confirming the action of Ld. TPO in rejecting though they are functionally comparable and passes all the filters applied by the L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the receivables due from overseas AEs are in foreign currency and hence, interest if any, is to be benchmarked with the rates prevalent in the international market for foreign currency loans, i.e., at USD LIBOR plus. C. Corporate Tax 15. On the facts and in the circumstances of the case and in contrary to the law, the Hon'ble DRP has erred in not admitting the fresh claim raised by the Appellant with respect to the claim of education cess as a tax deductible expenditure under the normal provisions of the Act. 16. Without prejudice to Ground number 15, on the facts and in the circumstances of the case and in contrary to the law, the Hon'ble DRP has erred in not allowing education cess as a tax deductible expenditure under the normal provisions of the Act. D. Consequential 17. On the facts and in the circumstances of the case and in law, the Ld. AO erred in in levying interest and penalty and the said levy of interest and penalty being wholly unjustified, ought to be deleted. 3. The brief facts of the case are that assessee is a Private Limited Company, filed its return of income for A.Y.2016-17 on 28.11.2016 electronically u/s 139 of the Act declaring total incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dt. 18.11.2019 passed u/s 143(3) r.w.s. 144C and Section 92CA of the IT Act, directions given by DRP u/s 144C(5) of the Act and "Give Effect to Directions u/s 144C order of the TPO dt. 19.03.2021, the final assessment order u/s 143(3) r.w.s. 144C(13) of the Act was passed and the total income of the assessee was assessed at Rs. 49,99,97,796/-. Thereafter, as the assessee furnished inaccurate particulars with regard to the international transactions carried out by it to the extent of Rs. 19,48,67,226/- Assessing Officer issued penalty proceedings u/s 271(1)(c) of the Act and accordingly issued penalty notice u/s 271(1)(c) of the Act. 4. Feeling aggrieved with final assessment order, assessee preferred appeal before us. 5. At the outset, ld.AR had submitted that the assessee has challenging the inclusion and exclusion of comparables and had also insisting for the other issues. 5.1. The ld. AR for the assessee as well as the Ld. DR for the Revenue have submitted that the assessee was treated as ITeS / KPO in the preceding years, however, for the A.Y. 2014-15, the Tribunal has deleted the E-Clerx on the premise that the functions performed by E-Clerx are not comparable with that of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant portion i.e., Paras 2.1 and Paras 9.6 to 9.11 (on pages 815 and 821 to 825 placed in paper book) in the case of assessee for A.Y. 2011-12 in ITA No.128/Hyd/2016 dt.21.12.2016, which read as under : "2.1. Assessee is involved in providing support services in connection with CAE/CAD modeling and iterative simulation. It receives the basic design from its group company with respect to CAD modeling and makes a 3D CAD modeling data of vehicle components using CAD software tools. Assessee is a routing support service provider and it assumes less than normal risk associated with carrying out such business. The International transactions reported by assessee are as under : Sl. No. ASSOCIATED ENTERPRISES NATURE OF INTERNATIONAL TRANSACTIONS AMOUNT IN RS. 1 Hyundai Motor Company, Korea Engineering / Consulting Engineering Services / IT enabled Services (ITeS) 43,57,37,674 2 Kia Motor Corporation, Korea 20,52,60,386 3 Hyundai Auto Ever Corporation, Korea Purchase of computers 2,64,56,224 Purchase of Security equipment 64,667 Annual Licence fee for software 98,95,527 Purchase of computer software 23,07,715 Reimbursement of expenses 11,08,347 4 Hyundai Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sidering the rival submissions and pursuing the relevant material on record, we find that functionally, this company is into development of software products for healthcare. It is submitted by the ld.AR that Accentia Technologies Ltd is engaged into diversified activities such as Knowledge Process outsourcing(KPO), Legal process outsourcing(LPO), Data process Outsourcing(DPO), high end software services. It is submitted by the ld.AR that segmental information in respect of this company is not available. We find that the Ld. TPO had adopted this company as a comparable as the Ld. TPO is of the view that the services rendered by this comparable are in the nature of BPO or back office services and that nothing he is earned from sale of products. We have perused the annual reports of this company and have observed that Accentia owned a brand and goodwill on account of acquisition/amalgamation of a defendant in force. Further it is observed that this company is providing services in the field of medical transcription billing and collections income from coding etc for which complete segmental information are not available. In our considered opinion this company is functionally dissim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdinary event, it is noticed that the said company has wound-up a subsidiary company w.e.f. 29-03-2011. Since it has not acquired the company whose turnover is included in assessee-company but only wound-up a dormant company, we are of the opinion that it does not have any bearing on assessee's operating results. Super normal profits cannot be a basis for exclusion of a company and since the DRP has considered the objections, we agree with the findings of DRP. Even though the company was excluded in earlier year, we are of the opinion that each year is to be considered separately on the basis of the facts and in TP matters the facts will vary from year to year. Accordingly, we are of the opinion that this company cannot be excluded. To that extent, the ground raised by assessee is rejected. iii) Crossdomain Solutions Private Limited: 9.10. With reference to this company, it was submitted that the company is functionally dissimilar as it has a diversified Knowledge Process Outsourcing Company providing services in insurance, health care, HR and accounting domains. Company also offers business excellence market research and data analytics and IT services. It was also submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses 49,08,346 Payable 60,88,745 Hyundai Motor Company Provisions ITeS 47,99,49,928 Reimbursement of expenses 3,63,21,335 Receivables 6,34,42,881 Kia Motor Corporation Provision of ITeS 23,26,70,265 Receivables 4,32,08,022 6.1 Eclerx Services Ltd. - Ld. AR submitted that this company cannot be a comparable to the assessee company as this company is a knowledge process outsourcing company and as per the annual report of the company, it is engaged in the provision of services in business units of financial services and sale and marketing support. He submitted that there was an extraordinary events as a subsidiary company of Eclerx Services Ltd. was wound-up. It has super normal profits during the year and cannot be compared to the assessee company. He submitted that it has diverse activities & no segmental details are available and it has high turnover of Rs. 472 crores. Further, he brought to our notice that, by referring to annual reports of this company vide page 395 of paper book, this company has acquired Agilyst Inc, USA. The extraction of the submission is reproduced below: "This year also saw us acquire Agilyst Inc, a US company providing operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cluded in assessee- company but only wound-up a dormant company, we are of the opinion that it does not have any bearing on assessee's operating results. Super normal profits cannot be a basis for exclusion of a company and since the DRP has considered the objections, we agree with the findings of DRP. Even though the company was excluded in earlier year, we are of the opinion that each year is to be considered separately on the basis of the facts and in TP matters the facts will vary from year to year. Accordingly, we are of the opinion that this company cannot be excluded. To that extent, the ground raised by assessee is rejected." Following the decision of the coordinate bench as above, we exclude this company as comparable. 9. Similarly, we are reproducing the relevant portion i.e., Paras 9 and 10 at page 883 and Para 32 at page 894 of the paper book in assessee's own case for A.Y. 2014-15 in ITA No.2303/Hyd/2018 which reads as under : "9. The ld Counsel for the assessee Shri H Srinivasulu submitted that the assessee is the 100% captive service provider to its AEs in R&D support services of automobile parts. He submitted that the basic designs come from the AE whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rule 10TA(g) of the I.T. Rules which refers to "engineering services and design services" as a KPO service, to impress upon us that the assessee is not rendering any of such services and therefore, it cannot be considered as a KPO. He also led us to page 972 of the Paper Book being the workflow chart to demonstrate that the assessee is rendering the entire work on the instructions of the AEs. He also led us through the research agreement at pages 967 to 971 of the Paper Book, wherein the assessee is required to provide the computer aided design engineering services. He submitted that the assessee has not rendered the project support services, software development services and research services which are mentioned at page 969 of the Paper Book. He also drew our attention to page 540 of the Paper Book, wherein in its TP study, the assessee has stated that it is primarily involved in advance R&D support services focused on project design engineering and quality enhancement and provides all back end operations like computer aided design and computer aided engineering. He also drew our attention to the profile of the company at page 544 of the Paper Book. As regards the functions perfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ok and at page 967, it is stated that the services are included but not limited to. He submitted that the above high-end services can be performed only by highly qualified persons and the workforce is to be highly suited for such services and the assessee is also having such skilled workforce. Therefore, according to him, the assessee is not low end BPO, but is a KPO and therefore, E-Clerx Ltd cannot be excluded. 32. Thus, on a comparison of the functions of the assessee and other companies reproduced above, we find that E- Clerx Ltd is not only into ITeS services, but is also rendering KPO services and therefore, it cannot be compared to the assessee. In the decisions of the ITAT where it has been held to be a comparable to the assessee, we find that ITAT has held that the services provided by the assessee company and E-Clerx Ltd are similar and that the extra-ordinary event of winding up of the subsidiary company has not been proved to have any bearing on the assessee's profits and that super normal profit may not be a basis for exclusion of this company. However, we find that the Coordinate Benches of the Tribunal nor the Revenue Officers have not brought out functions which a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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