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TMI Blog2024 (8) TMI 1546X X X X Extracts X X X X X X X X Extracts X X X X ..... The Learned CIT (A)/ Learned AO/ Learned TPO have erred in law and in facts, in not discharging the statutory onus to establish that an Appellant's case is covered under any of (a) to (d) clause of Section 92C(3) of the Act, has not been discharged by the learned TPO is bad in law and void ab-initio. 2. 3. The Learned CIT (A)/ Learned AO/ Learned TPO have erred in not appreciating that the Appellant had prepared the detailed contemporaneous Transfer Pricing documentation bona fide and in compliance with the Act and Income Tax Rules, 1962 ("the Rules") and selected uncontrolled comparable companies based on a detailed Functional Asset and Risk analysis following a methodical benchmarking process. 4. The Learned CIT (A)/ Learned AO/ Learned TPO have grossly erred by passing an order with a preoccupied mind to make an adjustment that is contrary to the facts and prejudicial to the interest of the Appellant. 5. The Learned CIT (A) has erred in determining the arm's length price ("ALP") of the international transactions to be 50 percent of the amount paid by the Appellant to its associated enterprises ("AEs") for receipt of intra group services from its AEs. 6. The L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rejecting company namely C G-VAK Software and Exports Limited, identified by the Appellant using turnover of less than INR 5 Crores as a comparability criterion to sieve non comparable companies with respect to provision of back office support services. 14. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting certain companies identified by the Appellant in its TP documentation, having different accounting year than the Appellant (i.e. companies having accounting year other than March 31 2009 or data of the company does not fall within 12 month period i.e. 01-04- 2008 and 31-03-2009). 15. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by rejecting certain comparable companies identified by the Appellant on account of export revenues being less than 75% of the operating revenues with respect to provision of back office support services. 16. The Learned CIT (A)/ Learned AO/ Learned TPO have erred by erroneously rejecting certain comparables and adding certain companies to the final set of alleged comparables for the impugned transaction on an ad-hoc basis, thereby resorting to cherry picking of comparables for benchmarking the provision of back offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision in Mercer Consulting Ltd., and without considering how the facts are similar, and without considering CBDT circular SO 890 (E) dated 26.09.2000 listing products or services which could be claimed under ITES. 1.5 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in directing exclusion of E-clerx Services Ltd. and ICRA Online Ltd. from the comparables, without considering the functional profile of the assessee and these comparables. 2.1 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in allowing relief on the transfer pricing adjustment towards intra group services. 2.2 That in the facts and circumstances of the case, and in law, the Ld. CIT (A) erred in allowing relief on the transfer pricing adjustment towards intra group services, erroneously observing that recharacterization of the transaction and questioning expediency is not permissible, without considering that in this case, the arm's length price has been determined at nil after examining the facts. 2.3 That in the facts and circumstances of the case, and in law, the Ld. [CIT](A) erred in allowing relief on the transfer pricing adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. Cosmic Global Ltd. And directed to include of following comparableies: 1. R System International Ltd. 2. Cepha Imaging Pvt. Ltd. Aggrieved by the order of the Ld. CIT (A) both the assessee as well as the Revenue filed the present Appeal on the grounds mentioned above. 7. Ground No. 1 to 5 of the Assessee's Appeals are argumentative and general in nature which requires no adjudication. INTRA GROUP SERVICES (IGS) 8. Ground No. 5 to 11 of the Assessee are directed against order of the Ld. CIT (A) in determining the Arm's Length Price of international transaction to be 50% of the amount paid by the Assessee to its AE for receipt of Intra Group Services from its AE's and the Ground No. 2.1 to 2.3 of the Revenue are against the granting of 50% relief to the assessee on ad-hoc manner. Therefore, the above Grounds of the assessee and the Revenue are adjudicated as under:- 9. The assessee company paid an amount of Rs. 22,65,40,886/- to its AE as payment for receipt of Intra Group Services (IGS). To enquire about the said transaction, for determination of ALP, the TPO issued show cause notice on 28/12/2012 to the assessee company calling the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es to any other AEs/independent parties also. if yes the details thereof including the rates/amount charged from such AEs along with mark up if any. 13. If the AB has rendered services to more than one entity including the assessee company, then the basis of allocation amongst various entities may be furnished. Please also furnish the basis of choosing a particular allocation key. 14. If the above information is not furnished, complete in all respects, along with contemporaneous documentary evidences, the arm's length payment for these intra group services would be treated as Nil by applying CUP method. If the above information is not furnished along with contemporaneous documentary evidences and separate benchmarking for these transactions is not done, the payment for these intra group services would be treated as Rs. Nil by applying CUP method." 10. The assessee vide its letter dated 16/01/2013, furnished the reply which is reproduced as under:- Nature of Services Comments Technology Services The assessee has claimed to have received technology service which helped it to maintain and support its hardware and telecommunication resources for processing of k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices, Strategic Planning Services and External Professional Services. These services seem to be of a very generic nature with there being nothing so unique in these services that the assessee itself may not have been able to perform. Every organization has its own performance measurement, and troubleshooting mechanisms in place. Hence, it is not understandable as to why the assessee relying on its AEs for accomplishment of such routine tasks. No evidence has been put forth to show that the AE has indeed helped the assessee in this regard. The assessee is already incurring expenditure on personnel cost and professional cost. The assessee has not demonstrated as to what kind of management services, HR Services or legal services have actually been availed by the assessee. There is no evidence submitted the show what strategic management directions, advices etc. were given by the AE, which consultants were engaged with the help of the AE which the assessee could not engage itself, what guidance was received from the AE. Moreover, what benefit the assessee has received from these services. The functions which have been specified by the assessee in the management services are of generi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arameters. Even for the performance score cards, no evidence was furnished regarding its authenticity. Even otherwise, this evaluation in no way reflected receipt of any of the above mentioned services. In the absence of such crucial information, the Assessees contention that specific services have been performed which were needed by the assessee and for which it did not have expertise or logistics in India does not seem tenable. Thus, the assessee has failed to substantiate that any service in this regard has actually been availed by it." 12. TPO asked the assessee why the ALP of such services cannot be treated as NIL as the assessee has failed to establish receipt of such services. Further the contentions of the assessee has not been accepted by the TPO on following grounds:- * "There is no evidence that the services have actually been provided. The assessee has failed miserably to demonstrate the need for these services as also the receipt of the same. * Even if it is considered that some sort of services have been provided by the designated persons, there is no evidence that those persons have not provided any service to the AE. Those persons are in the payroll of AE and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services to third parties as well. It is apparent, as has been mentioned above, that services of such nature are being performed by the assessee itself during its normal course of business. Under arm's length circumstances no independent enterprise would be willing to pay for services which are a part of its routine business performed by it and would not engage it to receive such incidental services for a payment, even at cost. * Moreover, it is not disputed that the activities for which it is paying, are also performed by itself. Under the OECD guidelines, no intra-group service should be found for activities undertaken by one group member that merely duplicate a service that another group member is performing for itself, or that is being performed for such other group member by a third party. Moreover, even if it is presumed without conceding that business exigencies do permit third party involvement in spite of its own endeavor, in no case is there is scope for duplicity of services. Moreover, the cost of such services, if any, would need to be identified to prove that it has not overpaid its AE than what would have been paid under arm's length circumstances." 13. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. TPO has excluded the said Company on the ground that the said Companies are failing turnover filter and are engaged in providing software development services thus the same are not comparables. 18. The Ld. Counsel for the Assessee submitted that this Company operates in three segments namely software service segment, training services segment and BPO services segment. For the purposes of benchmarking of international transaction, BPO service segment has been considered as comparable to Assessee and further submitted that quantum turnover can be no reason for exclusion of a company which is otherwise comparable and relied on the Judgment of Hon'ble High Court of Delhi in the case of Chrys Capital Investment Advisors (India) Pvt. Ltd. (376 ITR 183). 19. We have heard the parties perused the material available on record. The Ld. CIT (A) after verifying the record found that the turnover is ITeS segment is only about Rs. 86,00,000/- out of total turnover of Rs. 7.23 Crore (i.e. 6.37 crore pertain to software services and remaining Rs. 0.86 crore pertains to ITEs Segment), whereas the turnover of the assessee is more than Rs. 19.95 Crore in ITEs Segment. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ground No. 1.1 to 1.2 of the Department's Appeal. R System International Ltd. 27. The Ld. CIT (A) directed the TPO to consider R System International Ltd. in final list of comparable if quarterly audited data provided by the assessee for computing the operating profit margin for the instant Assessment Year. 28. The Ld. Departmental Representative vehemently submitted that the Ld. CIT (A) erred in directing the inclusion of R System International Ltd. as comparable without considering Rule 10B(4) of the Rules and without considering the amounts of operating profit or operating cost etc. 29. Per contra, the Assessee's Representative relying on the order of the CIT (A) sought for dismissal of the Ground No. 1.3 of the Department. 30. The Ld. TPO while excluding to consider R System International Ltd. from the comparables found that there are different Financial Year ending of December 2008 instead of March 2009, although the TPO found that functional profile of BPO segment of R System International Ltd. is similar to that of the Assessee and its satisfies all comparability criteria. In the Appeal, the Ld. CIT (A) observed that if quarterly audited data is provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31. The Ld. CIT (A) by following relying on the order of the Tribunal in the case of Mercer Consulting directed to exclude Coral Hub Ltd. and Cosmic Global Ltd. from list of comparables. 32. The Ld. Departmental Representative submitted that the Ld. CIT (A) committed error in directing to exclude Coral Hub Ltd. and Cosmic Global Ltd. from the comparables merely by relying upon the decision in the case of Mercer Consultancy Ltd. without considering how the facts are similar and without considering the CBDT Circular SO 890(E)/26/09/2000 listing products or services which could be claimed under ITEs. 33. Per contra, the Assessee's Representative submitted that the Ld. CIT (A) has relied on the order of the Tribunal in the case of Mercer Consultancy Pvt. Ltd. and both Cosmic Global and coral Hub were directed to be excluded as the major outsourcing activity being carried out by it, therefore, the order of the CIT (A) requires no interference at the hands of the Tribunal. 34. We have heard both the parties and perused the material available on record. The Ld. CIT (A) while directing the A.O/TPO to exclude the Coral Hub Ltd. and Cosmic Global Ltd. from the list of comparables, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld fully apply to hold Cosmic Global Limited as incomparable. This case is, therefore, directed to be excluded from the list of comparables." 6.4.2 I have considered the arguments of the Ld AR and perused the decision of Hon'ble ITAT Delhi in the case of Mercer Consulting. Following the decision of Hon'ble ITAT, I direct the AO/TPO to exclude Coral Hub Ltd. and Cosmic Global Ltd. from the list of final comparables." 35. The Ld. CIT (A) as directed to exclude the above two Comparables finding that the major outsourcing activities being carried out by it and also by relying on the order of the Tribunal in the case of Mercer (India) Pvt. Ltd. (Supra), since the Revenue has not brought anything on record to point out any change of circumstances in Assessee's case, we find no reason to interfere with the finding of the Ld. CIT(A). Find no merit in Ground No. 1.4 of the Department, we dismiss the Ground No. 1.4 of the Department. E-Clerx Services and ICRA Online 36. The Department of Revenue is aggrieved by exclusion of EClerx Services and ICRA Online in Ground No. 1.5. The Ld. Departmental Representative submitted that the Ld. CIT (A) has committed error ..... X X X X Extracts X X X X X X X X Extracts X X X X
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