2014 (11) TMI 690 – ITAT HYDERABAD – TMI – – Transfer pricing adjustment – Back office support services in the field of investment and insurance management to AE – Exclusion of comparables – Held that:- Following the decision in Capital IQ Information Systems (India) (P.) Ltd. Versus Deputy Commissioner of Income-tax (International Taxation) [2014 (3) TMI 626 – ITAT HYDERABAD] – Coral Hub works as an agent by outsourcing its work to third party vendors and cannot be taken as a comparable to the ITES functions being involved by assessee – the company is not comparable functionally to the assessee, there is no reason to interfere with the order of CIT(A) – because of exceptional financial results due to merger/demerger, Moldtek Ltd., cannot be taken as comparable – Decided against revenue.
Computation of deduction u/s 10A – Inclusion of communication charges from export turnover – Held that:- AO excluded the communication charges from export turnover holding that they are no
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d upon such verification that the amalgamation in fact ahs taken place, then the aforesaid comparable has to be excluded – the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable – this company cannot be considered as a comparable.
Acropetal Technologies Ltd. (Seg.) – Held that:- The major source of income for the company is from providing Engineering Design Service and Information Technology Services – The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee – The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions – this company could not have been selected as a comparable, especially when it performs engineering design service
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tunity of hearing to the assessee – the matter is remitted back to the TPO.
Wipro Limited – Industrial giants – Held that:- The TPO has excluded the companies whose turnover is less than Rs. One Crore on the ground that they may not be representing the industry trend – That very logic also applies to the companies having high turnover of over ₹ 200 crores as against the assessee's turnover of only ₹ 15 crores, and therefore, it would be fair enough to exclude those companies also – the companies cannot be treated as comparable, considering their substantially high turnover as compared to that of the assessee – these companies cannot be regarded as comparables – since the seven comparables are held not comparable in various decisions of coordinate benches, A.O. / TPO is directed to exclude the above comparables and reworkout the ALP – Assessee should be given an opportunity to make submissions on the risk adjustments/working capital adjustment if so required befor
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E). Flagstone India was established to provide back office support services in the field of investment and insurance management primarily to its associated enterprises. The company provides services only to its associated enterprises. Flagstone India primarily performs the tactical managerial functions regarding day to day management business. Financial Results of taxpayer for the F.Y. 2007-08 : Description Amount Operating Revenue Rs.12,96,53,298 Operating Cost Rs.11,21,56,923 Operating Profit (PBIT) ₹ 1,74,96,375 Operating Profit to Cost Ratio 15.60% International Transactions (as mentioned in the 92 CE report): Provision of IT Enabled Services Rs.12,64,08,934 Payment of interest on convertible debentures ₹ 43,71,230 The matter was referred to the TPO on account of the international transactions with AE. The TPO suggested an adjustment of Rs. l,84,52,948 under section 92CA of the Income-tax Act, 1961. Assessee decided to file an appeal before the CT(A) and accordingly did
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it C. Mehta 4.82 9.10 5. Caliber Point Business Solution (Seg.) 53.00 10.97 6. Coral Hub (Vishal Info) 13.07 51.84 7. Cosmic Global 5.86 24.30 8. Crossdomain Solution P. Ltd 27.40 26.96 9. Datamatics Financial (BPO Div.) 16.72 34.87 10. e4e (earlier known Nitanny Outsourcing) 25.99 17.50 11. Eclerx 123.45 66.50 12. Genesys International 47.52 51.91 13. HCL Comnet Systems & Services Ltd., (seg.) 388.05 32.97 14. ICRA Online Ltd. (Seg.) 82.29 11.22 15. Infosys BPO Ltd., 825.08 20.03 16. I-service India Pvt. Ltd., 13.39 10.92 17. Mold Tek Technologies Ltd., 17.84 106.82 18. R System International Ltd. (seg.) 21.33 4.30 19. Spanco Ltd., (seg.) 42.27 8.94% 20. Wipro Limited 1158.80 30.23 Arithmetic Mean 29.16 3.1. Ld. CIT(A) also noted that assessee has no objection for inclusion of 11 comparables. Sl.No. Name of the Comparable Company 1. Aditya Birla Minacs 2. Asit C. Mehta 3. Caliber Point Business Solution (Segl.) 4. Crossdomain Solution P. Ltd., 5. Datamatics Financial (BPO Div.) 6.
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parables are excluded from the list of comparables for calculation of ALP, assessees ALP is well within the band of arithmetic mean arrived at by TPO and other grounds on T.P. adjustments become academic in nature and are not required to be adjudicated upon. Accordingly, Ld. CIT(A) directed to exclude two comparables out of 9 objected and issued directions accordingly. 3.4. In addition to the adjustments on T.P. Assessing Officer also excluded communication charges from export turnover while working out the deductions under section 10A. Considering the objections raised by assessee and principles governed by various decisions on the issue, Ld. CIT(A) directed the A.O. to exclude the communication charges from total turnover as well. 4. Revenue is aggrieved on the exclusion of two comparables and direction of Ld. CIT(A) on exclusion of communication charges from both export turnover as well as total turnover for the purpose of computing deduction under section 10A of the I.T. Act. Reven
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chnologies, Ld. CIT(A) followed the decision in the case of Capital IQ Information Systems P. Ltd., of ITAT and gave a finding that because of exceptional financial results due to merger/demerger, Moldtek Ltd., cannot be taken as comparable. Ld. CIT(A) also followed the Coordinate Bench decision of Mumbai in the case of M/s. Stream International Services P. Ltd., Mumbai vs. ADIT (Intl. Taxation) 7(2), Mumbai ITA.No.8997/Mum/2010 dated 11.01.2013 on the unreliability of the data. Since Ld. CIT(A) order is in tune with the various decisions of the Coordinate Benches, we do not see any reason to interfere with the order of Ld. CIT(A) on the exclusion of two comparables. Accordingly, ground Nos. 2 and 3 raised by Revenue are dismissed. 6. Ground No.4 is on the issue of exclusion of communication charges both from export turnover as well as total turnover. As briefly stated, A.O. excluded the communication charges from export turnover holding that they are not to be included in the Export t
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Now coming to assessee s appeal, it was submitted that Ld. CIT(A) has wrongly considered exclusion of only two comparables when assessee has objected to 9 comparables. Ld. AR pointed out that assessee has given written submissions that not only the above two comparables but also working capital adjustments as suggested by assessee would make the ALP within the band approved under I.T. Act. However, Ld. CIT(A) did not consider the issue of working capital adjustment. Therefore, assessee is contesting the inclusion of other comparables objected before Ld. CIT(A). Ld. Counsel referred to the submissions made before Ld. CIT(A) to submit that if the working capital adjustment was provided then the ALP would be within the norms as approved. However, since the issue of working capital adjustment was not adjudicated by Ld. CIT(A), assessee is objecting to the balance of comparables. It was submitted that 7 comparables objected by assessee before Ld. CIT(A) were already rejected as comparables
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mparable companies chosen by the TPO. The ld. Counsel for the assessee drew our attention to the fact that there are extra ordinary events that occurred during the previous year in this company. Our attention was drawn to the annual report of this company for the A.Y. 2007-08 wherein the fact that this company had acquired Thunga Software Pvt. Ltd., GSR Physicians Billing Services Inc., GSR Systems Inc. and Denmed Inc. was mentioned. Our attention was also drawn to the decision of the Hyderabad ITAT Bench in the case of Capital IQ Information Systems India ITA No.1316/Bang/2012 Pvt. Ltd. v. DCIT [ 2013] 32 Taxman.com 21 (Hyd. Trib). In the aforesaid decision, the Hyderabad Bench of the Tribunal had to deal with a case of determination of ALP in the case of an assessee who was providing ITES business support services for the A.Y. 2007-08. The TPO had considered Accentia Technologies Ltd. as a comparable. The DRP however held that the said company cannot be compared as a comparable owing
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erger of Plastic Division of the company and the resulting company is known as Moldtek Plastics Limited. The de-merger from the Moldtek Technologies took place with effect from 1st April, 2007. The merger and the de- merger needed the approval of the Hon'ble High Court of Andhra Pradesh and also the approval of the shareholders. The shareholders of the company gave approval for the merger and the de-merger on 25.01.2008 and the Hon'ble High Court of Andhra Pradesh had approved the merger and de-merger on 25th July, 2008. Subsequently, the ITA No.1316/Bang/2012 accounts of Moldtek Technologies for FY 2007-08 were revised. On a perusal of the annual report it is noticed that Teckmen Tools Pvt. Ltd. and the Plastic Division of the company were demerged and the resulting company was named as Moldtek Plastics Ltd. The KPO business remained with the company. A perusal of the Annual report revealed that to give effect to the merger and demerger, the financial statements were revised a
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n case of the aforesaid company, there is amalgamation in December, 2006, which has impacted the financial result. This fact has to be verified by the TPO. If it is found upon such verification that the amalgamation in fact ahs taken place, then the aforesaid comparable has to be excluded." We have considered the submissions of the ld. counsel for the assessee and are of the view that the ratio laid down by the Hyderabad Bench of the ITAT is squarely applicable to the present case also. Similar View was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. It is clear that during the previous year there were extra ordinary events that took place in this company which warrants exclusion of this company as a comparable. We therefore hold that this company cannot be considered as a comparable. II. ACROPETAL TECHNOLOGIES LTD. (Seg.) This company is listed at Sl.No.2 of the comparables chosen by the TPO. As far as this company is concerned,
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) Ltd (supra) by the Bangalore Bench, so the same require exclusion. In the above case it was considered like this: 13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No.15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Service and Information Technology Services. The functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcin
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ed at by the TPO was 24.30% whereas, after inclusion of interest and bank charges that comes to 23.30%. This revised working was furnished as part of the objections with a request for taking the revised margin against this comparable. However, subsequently, vide letter dated 30.07.2012 assessee objected to the comparable on the reason that it fails employee cost filter. The employee cost shown was at ₹ 1.17 crores which is 19.96% of the operating revenue of ₹ 5.87 crores. It was submitted by the learned Counsel that employees cost filter determined by the TPO was between 45% to 60% whereas, this company has only 19.96% as employee cost. Accordingly, this company is not a comparable company as it may be outsourcing the work. The learned D.R. however, submitted that assessee has accepted the same in the TPO proceedings. Therefore, should not be excluded now. While there was no objection for assessee objecting to the comparable even at a later stage when it comes to know of ne
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have been pointed out. It has further been submitted that extra ordinary events and peculiar circumstances prevail in the case of the assessee in as much as this company acquired a UK based company which has significantly contributed to the increase in the customer and revenue base of the company. This Tribunal in the case of Capital IQ Information Systems India Pvt. Ltd. (supra) had an occasion to deal with comparability of this company in the case of an ITES company such as the Assessee and the Tribunal held as follows:- "14. The assessee has objected for this company being taken as comparable mainly on the ground that it was having a supernormal profit of 89%, and as such it cannot be taken as a comparable in view of the decision of the Mumbai Bench of the tribunal in the case M/s. Teva India Ltd. (supra). That apart, relying upon the annual report of the company, the learned Authorised Representative for the assessee has contended that that the concerned company is engaged in
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and that it has a different employee skill set and that this company performs R&D services and also owns intangibles. This company is a geospatial services content provider specialising in land based technologies. From the notes to accounts of this company, it is seen that this company is engaged in providing geographical information services comprising of photogrammetry, remote sensing cartography, data conversion related computed based services and other related services. Further the business of this company requires skilled manpower and scientists, civil engineers, etc. Besides the above, this company also carries out R&D services and own intangibles. The aforesaid facts, in our view, will take this company out of the list of comparables. Similar view was also taken in the case of Symphony Marketing Solutions India(p) Ltd (supra) by the Bangalore Bench. In view of the above, we are of the view that this company cannot be regarded as a comparable and deserves to be excluded
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sed Representative for the assessee further contended that when the TPO has rejected companies with turnover of less than Rs. One crore, by stating that these companies may not be representing the industry trend, by applying the very same logic, he should not have also considered the companies having turnover of more than ₹ 200 crores. In this context, the learned Authorised Representative for the assessee has relied upon the decision of the ITAT Bangalore Bench in the case of M/s. Genesys Integrating System(India) P. Ltd. (2011) (2012) 53 SOT 159 / 20 taxmann.com 715 (Bang.) (URO) / 64 DTR 225. On considering the submissions of the assessee in relation to these companies, we find that the TPO has excluded the companies whose turnover is less than Rs.One Crore, on the ground that they may not be representing the industry trend. That very logic also applies to the companies having high turnover of over ₹ 200 crores as against the assessee's turnover of only ₹ 15 cr
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iant in the area of development of software and it assumes all risks, leading to higher profit. On the other hand, the assessee is a captive unit of its parent company in the USA and it assumes only limited currency risk. Having considered these points, we are of the view that the case of the aforesaid Infosys and the assessee are not comparable at all as seen from the financial data etc. of the two companies mentioned earlier in the order. Therefore, we are of the view that this case is required to be excluded." Similar view has also been expressed by the Hyderabad Bench of the Tribunal in the case of Trinity Advanced Labs P. Ltd. (supra). In the case of M/s. Genesys Integrating India P. Ltd. (supra), the Bangalore Bench of the Tribunal has observed in the following manner- "9. Having heard both the parties and having considered the rival contentions and also the juridical precedents on the issue, we find that the TPO himself has rejected the companies which are making losse
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n & Bradstreet and NASSCOM has 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 important and the companies having a turnover of ₹ 1.00 crore to 200 crores have to be taken as a particular range and the assessee being in the range having turnover of 8.15 crores, the companies which also have turnover of 1.00 to 200.00 crores only should be taken into consideration for the purpose of making TP study." In view of the aforesaid consistent decisions of the Tribunal, we accept the contention of the learned Authorised Representative for the assessee that the aforesaid companies cannot be treated as comparable, considering their substantially high turnover as compared to that of the assessee. We accept the contention of assessee that these companies can not be regarded as comparables. 10. Since the seve
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