Income Tax Appellate Tribunal - Bangalore
M/S.Mobily Infotech India Pvt. Ltd.,, ... vs Deputy Commissioner Of Income-Tax, ... on 8 August, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL,
BANGALORE BENCH "B"
BEFORE SHRI N.V VASUDEVAN, JUDICIAL MEMBER
SHRI JASON P BOAZ, ACCOUNTANT MEMBER
IT(TP)A No.2055/Bang/2016
(Asst. Year 2012-13)
M/s Mobily Infotech India Pvt. Ltd.,
1st Floor, RMZ Next, Campus 2A,
Whitefield Road, Whitefield,
Bangalore. . Appellant
PAN - AAFCM0601F
Vs.
The Dy. Commissioner of Income-tax,
Circle-4(1)(2),
Bangalore. . Respondent
Appellant by : Shri P.C Khincha, C.A
Respondent by : Ms. Neera Malhotra, CIT
Date of Hearing : 28-6-2018
Date of Pronouncement : 8-8-2018
ORDER
PER SHRI JASON P BOAZ, ACCOUNTANT MEMBER :
This appeal by the assessee is directed agisntst the final order of assessment for asst. year 2012-13 passed u/s 143(3) r.w.s 144C(13) of the Income-tax Act, 1961 (in short 'the Act'), vide order dated 28/9/2016, pursuant to the directions issued by the Dispute Resolution Panel-2 ('DRP') u/s 144C(5) of the Act on 2/9/2016.
IT(TP)A No.2055/B/16 2
2. Briefly stated, the facts of the case as under:-
2.1 The assessee company is engaged in two business segments, namely:-
(i) Software development services as a service provider for mobile phones, and
(ii) ITES segment which includes call centre and other allied support services.
2.2 For asst. year 2012-13, the assessee filed its return of income on 27/11/2012 declaring total income of Rs.7,96,90,377/-. The return was processed u/s 143(1) of the Act and the case was subsequently taken up for scrutiny. The Assessing Officer made a reference to the Transfer Pricing Officer ('TPO') u/s 92CA of the Act for determination of the arms length price ('ALP') of the international transactions entered into by the assessee during the year under consideration. In the course of these proceedings, the TPO rejected the assessee's TP analysis in respect of its ITES segment, performed a fresh T.P analysis and proposed TP adjustment of Rs.1,27,18,746/- in the order passed u/s 92CA of the Act on 29/1/2016. The AO passed the draft order of assessment u/s 143(3) r.w.s 144C of the Act on 29/2/2016; wherein the assessee's income was determined at Rs.9,24,09,123/- by incorporation therein of the TP adjustment of Rs.1,27,18,746/-.
IT(TP)A No.2055/B/16 3 2.3 Aggrieved by the draft order of assessment dated 29/2/2016 for asst. year 2012-13, the assessee filed its objections thereto before the DRP. The DRP issued its directions u/s 144C(5) of the Act vide order dated 2/9/2016, directing for exclusion of certain comparable companies, which led to an enhancement of the TP adjustment to Rs.1,58,79,279/- . Pursuant to the DRP's direction the AO completed the assessment u/s 143(3) r.w.s 144(13) of the Act vide order dated 28/9/2016 wherein the assessee's income was determined at Rs.9,55,69,656/- after inclusion of the TP adjustment of Rs.1,58,79,279/-.
3. Aggrieved by the final order of assessment dated 28/9/2016 for asst. year 2012-13, the assessee has filed this appeal, wherein it has raised the following grounds:-
"A. The Order of the Learned Assessing Officer, pursuant to the Directions of the Honourable DRP in so far as it is prejudicial to the interest of the Appellant is bad-in-law and bad-in-facts..
B. The Directions of the Honourable DRP in so far as the same are prejudicial to the interest of the Appellant are bad-in-law and bad-infacts.
C. As regards reference made under section 92CA (1) by the Learned Assessing Officer is without satisfying the conditions of section 92CA (1) and IT(TP)A No.2055/B/16 4 Learned Commissioner of Income Tax is not justified in approving such reference mechanically:
The Learned Assessing Officer is not justified in making reference to the Learned TPO under section 92CA (1) of the IT Act without satisfying the conditions provided therein, without application of mind, contrary to Instruction No. 15/ 2015.
D. As regards rejecting information and document (TP Document) maintained by the Appellant in accordance with the provisions of section 92D of the IT Act:
1. The Honourable DRP erred in upholding the action of the Learned TPO in invoking the provisions of section 92C (3) (c) of the IT Act ithout satisfying the conditions laid out therein.
2. The Honourable DRP erred in impliedly upholding the action Learned TPO in perversely stating that the Appellant's data reliable or correct & the erroneous reasons stated for holding that data are not reliable or correct.
E. As regards transfer pricing adjustment of Rs. 1,58,79,279/- made under section 92CA of the IT Act in respect of international transaction entered by the Appellant in the ITES Segment:
IT(TP)A No.2055/B/16 5
1. The Honourable DRP erred in issuing directions resulting in transfer pricing adjustment of Rs.1,58,79,279/- under section 92CA of the IT Act in respect of international transaction entered by the Appellant in the ITES Segment.
2. The Learned Assessing Officer and the Learned TPO are not justified in neither giving an opportunity to the Appellant while determining adjustment giving effect to the directions of Honourable DRP nor furnishing a copy of such determination to the Appellant.
3. The Honourable DRP erred in rejecting certain companies selected by the appellant on the basis of parameters laid down in Rule 1OB(2) of Income Tax Rules, 1962 which passed all the quantitative and qualitative filters applied by the Learned TPO in a fresh search undertaken by him. In doing so, the honourable panel rejected the following comparable companies:
• Accentia Technologies Limited • Jindal Intellicom Limited
4. The Honourable DRP erred in upholding the action the Learned TPO in failing to apply the turnover filter (i.e. upper limit) without appreciating the fact that turnover of the assessee was merely INR 16.46 crores.
IT(TP)A No.2055/B/16 6 In doing so, the Honourable DRP Panel selected the following companies:
5. The Honourable DRP erred in accepting the comparable companies which failed the FAR Analysis as their functional & risk profile were different as comparable to the risk profile of the appellant. In doing so, the Honourable DRP Panel erred in confirming the inclusion of following companies:
• Infosys BPO Limited;
• TCS E-Serve Limited;
6. The Honourable DRP erred in upholding the action the Learned TPO in choosing certain companies as comparables which failed the quantitative filters applied by the Learned TPO while conducting fresh benchmarking for selection of comparable companies.
IT(TP)A No.2055/B/16 7 In doing so, the Honourable DRP Panel erred in confirming the inclusion of following companies:
Employee Cost / Operating Revenue = 13.05% 3 BNR Udyog Ltd., Fails Related Party / Operating __________________________________________________
7. The Honourable DRP erred in accepting the comparable companies which had abnormally high profits margin. In doing so, the Honourable DRP Panel erred in confirming the inclusion of following companies:
IT(TP)A No.2055/B/16 8
8. Without prejudice to the above, the Honourable DRP erred in not appreciating that Learned TPO ought to have allowed adjustment towards entrepreneurial risk, credit risk and other risks assumed by the comparable companies.
9. The Honourable DRP and the Learned TPO erred in restricting the working capital risk adjustment to - 0.31%.
10. The Honourable DRP and the Learned TPO erred in treating provision for bad and doubtful debts and loans and advance as non-operating expenses while computing the PLI for comparable companies
11. Without prejudice to the above, the Honourable DRP erred in not appreciating that while determining arm's length price under TNMM the Appellant is IT(TP)A No.2055/B/16 9 eligible for the benefit of second proviso to section 92C (2) of the IT Act.
F. The action of the Learned Assessing Officer in denying the MAT credit under section 115JAA of the IT Act.
G. The Honourable DRP erred in upholding the levy of interest under section 234B of the IT Act when the conditions for levying such interest did not exist in the present case.
H. The assessee may be allowed to add, amend, alter or raise additional grounds of appeal.
I. The assessee prays for justice.
TRANSFER PRICING (GROUND D - 1 to 11) 4.1 In the year under consideration, the assessee has entered into the following international transactions with its associated enterprises ('AE').
Particulars Amount (Rs.)
IT Enabled services 16,46,35,357
rendered
Software Development 37,60,08,678
Services rendered
Reimbursement of Bank 5,73,18,078
charges received
IT(TP)A No.2055/B/16
10
4.2 The segmental margin computation of the assessee with respect to the above two segments as computed by the TPO in the order passed u/s 92CA of the Act are tabulated hereunder:-
Particulars Software ITES Segment
Development
Operating Rs.37,60,08,678/- Rs.16,46,35,357/-
Revenue's
Operating Cost Rs.32,98,07,104/- RS.13,81,04,678/-
Operating Profit Rs.4,62,01,574 Rs.2,65,30,679
OP/PC 14.01% 19.2%
4.3 With respect to the software development segment and reimbursement of expenses, the TPO has not drawn any adverse inference and therefore the same have been held to be at arms length. TP adjustment has only been suggested by the TPO in the ITES segment.
TP adjustment with respect to ITES segment 5.1 As per the assessee's TP study, it has selected the following 7 companies as comparable for its ITES segment.
IT(TP)A No.2055/B/16
11
S.No. Name of the company Op. margin or
cost %
1. Accentia Technologies 11.79%
Ltd.,
2. Ace BPO Service P. Ltd., 4.13%
3. BNR Udyog Ltd., 30.73%
4. Cosmic Global Ltd., 38.93%
5. Jindal Intellicom Ltd., 3.58%
6. Tricom India Ltd., 37.48%
7. Sundaram Business 3.14%
Services Ltd.,
Arithmetic Mean 18.54%
Since the average mean margin of the comparable companies computed at 18.54% was less than the assessee's margin at 18.84%, the international transaction in this ITES segment were considered to be at arms length by the assessee.
5.2 In the course of proceedings before the TPO u/s 92CA of the Act, the TPO rejected the assessee's TP analysis and undertook a fresh TP analysis. After considering the assessee's submissions/objections, the TPO selected a final set of 10 comparable companies which had an average margin of 28.11%, the details of which are extracted IT(TP)A No.2055/B/16 12 S.No. Name of case OP/OC (%)
1. Accentia Technologies 11.75% Ltd.,
2. Universal Print Systems 52.46% Ltd. (Seg)(BPO)
3. Informed Technologies 6.08% India Ltd.
4. Infosys BPO Ltd., 36.%
5. Jindal Intellicom Ltd., -0.05
6. Microgenetic Systems Ltd., 19.61
7. TCS E-Serve Ltd., 63.69%
8. BNR Udyog Ltd. (Seg) 50.61% (Medical Transcription)
9. Excel Infoways Ltd. 29.79 (Seg)(IT/BVPO)
10. e4e Healthcare Services 19.85% Ltd., Average PLI 28.11% 5.2 The TPO then proposed/computed a TP adjustment in the ITES segment of Rs.1,27,18,746/- as under:-
IT(TP)A No.2055/B/16 13 Arm's length mean 28.11% margin on cost Less: Working capital -0.31% adjustment Adjusted Mean Margin 28.42% Operating Cost (A) Rs.13,81,04,678 ALP - 128.42% of Rs.17,73,54,103 operating cost (B) Total operating Revenue Rs.16,46,35,352 (C) Shortfall being adjust- Rs.1,27,18,746 ment u/s 92CA (B-C) 5.4 Aggrieved by the draft order of assessment dated 29/2/2016 for asst. year 2012-13, wherein the proposed TP adjustment of Rs.1,27,18,746/- was incorporated, the assessee filed its objections thereto before the DRP. The DRP in direction issued u/s 144C(5) of the Act on 2/9/2016 rejected/directed exclusion of two comparables selected by both the assessee in its TP study and the TPO for the ITES segment. The DRP also directed that foreign exchange gain/loss be treated as operating in nature while computing the margins. Pursuant thereto, the AO passed the final order of assessment dated 28/9/2016 for asst. year 2012-13, wherein the TP adjustment in the ITES segment was computed at the enhanced figure of Rs.1,58,79,279/-.
IT(TP)A No.2055/B/16 14 5.5 Before us, the ld AR of the assessee seeks the exclusion of the following 5 companies from the final set of 7 comparables chosen by the TPO.
(1) Universal Print Systems Ltd., (seg. - BPO) (2) Infosys BPO Ltd., (3) TCS E-Serve Ltd., (4) BNR Udyog Ltd. (seg. Medical Transcription); and (5) Excel Infosys Ltd. (seg. IT/BPO) 5.6 Further, the ld AR of the assessee seeks inclusion of the following two companies in the list of comparables by the DRP; which were selected and approved by both the assessee and the TPO.
(1) Accentia Technologies Ltd., and (2) Jindal Intellicom Ltd., Exclusion of companies as comparables sought for by the assessee
6. Universal Print Systems Ltd., (seg: BPO) 6.1 The ld AR for the assessee submitted that this company should be rejected as a comparable for the following reasons.
(i) Fails the employees cost Filter IT(TP)A No.2055/B/16 15 According to the ld AR, this company fails the employee filter of Rs.25% applied at the entity level. The employee cost filter of the assessee works out to 18.56% (viz. employee cost of Rs.5,27,11,884/- / by total operating revenue of Rs.28,40,79,094/-). It is submitted that since details relating to employee cost allowable to specific segments is not available, the same is taken at entity level.
(ii) Functionally different The ld AR submits that as per page 69 of its Annual report, this company is engaged in pre-press services and as pre-press activity is connected to the printing industry/process, it is not comparable to call entire services rendered by the assessee. Therefore, it requires to be rejected as a comparable to the assessee since it is functionally different from companies providing ITES. In support of this proposition, the ld AR placed reliance on the decision of the co-ordinate bench of this Tribunal in the case of M/s XL Health Corporation India Pvt. Ltd., in IT(TP)A No.2311/Bang/2016 for asst. year 2012-13.
6.2 The ld DR for Revenue supported the orders of the authorities below. According to the ld DR, in similar facts and circumstances a co-ordinate bench in the case of CGI Information Systems & Management Consultation Pvt. Ltd., in IT(TP)A No.183/Bang/2017 dated 11/4/2018 for asst. year 2012-13, at para 47 to 52 thereof has remanded back the issue of comparability IT(TP)A No.2055/B/16 16 analysis at the segmental level to the file of the TPO for examination and verification of the assessee's claim. It is prayed that the same be followed in this case also.
6.3.1 We have heard the rival contentions and perused and carefully considered the factual material on record; including the judicial pronouncements cited. In the facts and circumstances of the case, as narrated above, we are of the considered view that on similar facts, as in the case on hand a co-ordinate bench of this Tribunal in the case of CGI Information Systems and Management Consultation Pvt. Ltd., also for asst. year 2012-13 (Supra), has remanded the issue of comparability analysis at the segmental level to the file of the TPO for examination and verification, by holding as under at paras 47 to 52 as thereof:-
47. The next submission of the learned counsel for the Assessee was with regard to exclusion of 2 comparable companies from the list of 7 comparable companies that remain after the order of the DRP. The first comparable company sought to be excluded is Universal Print Systems Ltd. This company was chosen as a comparable company by the TPO. In reply to the proposal of the TPO to include this company as a comparable company, the Assessee vide its letter dated 22.12.2015 had pointed out its objections to including this company as a comparable company. A copy of the said objection is at page-785 of the Assessee's paper book. The Assessee pointed out that the OP/TC of this company as worked out by the TPO at 59.40% was wrong and unallocated costs as per the annual report should be IT(TP)A No.2055/B/16 17 allocated to BPO segment and if that is done then the OP/TC of this company will be only 51.80%. The Assessee further pointed out (Page764 of paper book) that the TPO had applied revenue filter of more than 75% being from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbor rules introduced by the CBDT ITES has been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition of ITES as contained in Rule 10TA(e ) of the Rules. Since use of information technology is absent in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more than 25% of its revenue.
48. The TPO at page-20 of his order has dealt with the above objections by observing as follows:
IT(TP)A No.2055/B/16 18
(a) Pre-Press BPO unit provides back office support services.
(b) This company has four major segments viz., Repro, Label Printing, Offset Printing and Pre press BPO. The employee cost of pre press BPO was more than 25% of the revenue from pre press BPO and therefore the employee cost filter is satisfied in the case of this company.
(c ) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted.
49. On objections by the Assessee before the DRP, the DRP confirmed the action of the TPO. One of the objection before the DRP was that this company did not figure in the list of companies engaged in ITES. On this objection the DRP held that though this company did not figure in the list of companies in ITES in the main search of capital line and prowess database but on a segmental search these two companies satisfied the requirement of being considered as companies engaged in providing ITES.
50. Aggrieved by the directions of the DRP, the Assessee is in appeal before the Tribunal. The learned counsel for the Assessee reiterated submissions that were made before the TPO/DRP. In particular it was submitted that the service revenue filter was applied by the TPO himself at the entity level and on such search this company was not regarded as engaged in providing ITES. At this stage the TPO ought to IT(TP)A No.2055/B/16 19 have dropped this company as a comparable company because this filter has to be applied at the entity level and not at the segmental level. The learned DR submitted that if the service revenue filter is applied at the segmental level there can be no objection by the Assessee. She relied on the order of the DRP/TPO.
51. The requirements of Rule 10B (1) (2) & (3) of the Rules in the matter of comparability of companies under TNMM needs to be seen. The same reads as follows:
"10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely :--
(a) to ( d) .......
(e) transactional net margin method, by which,--
(i)the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base;
(ii)the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base;
(iii)the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the IT(TP)A No.2055/B/16 20 international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market;
(iv)the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii);
(v)the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction.
(2) For the purposes of sub-rule (1), the comparability of an international transaction with an uncontrolled transaction shall be judged with reference to the following, namely:--
(a)the specific characteristics of the property transferred or services provided in either transaction;
(b)the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions;
(c)the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions;
(d)conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of IT(TP)A No.2055/B/16 21 competition and whether the markets are wholesale or retail.
(3) An uncontrolled transaction shall be comparable to an international transaction if--
(i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged or paid in, or the profit arising from, such transactions in the open market; or
(ii)reasonably accurate adjustments can be made to eliminate the material effects of such differences."
52. There appears to be no bar in the Rules referred to above to considering segmental data under TNMM because the comparison is of "net profit margin realized by the enterprise from an international transaction" with the "net profit realized from a comparable uncontrolled transaction". Therefore comparison is of similar transaction. When segmental information is available and is not disputed, it cannot be argued that filters have to be applied at entity level. It cannot be argued that when the TPO himself applied the filters at the entity level he was not entitled to apply the filters at segmental level. As we have already stated if clear segmental information is available the filters can be applied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro, Label Printing, Offset Printing and Pre press BPO.
IT(TP)A No.2055/B/16 22 Whether the label printing and offset printing segments supplement the functions performed in the Pre-press BPO segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the TPO the comparability of this company. In terms of Rule 10B(3) of the rules the profit margins of Pre-Press BPO have to be adjusted taking into account the fact that two other segments supplement the pre-press BPO segment. If such adjustment cannot be reasonably or accurately made then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s.133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of information about allied services performed by the pre- press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regarded to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s.133(6) of the Act. The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO."
6.3.2 Respectfully following the decision of the co-ordinate bench in the case of CGI Information Systems and Management Consultants Pvt. Ltd., also for asst. year 2012-13, to which one of IT(TP)A No.2055/B/16 23 us is party, we remand the issue of the comparability of this company; Universal Print Systems Ltd., back to the file of the TPO for examination and verification of issues raised by the assessee of functional comparability and employees cost filter of 25% at segmental level, which the AO may gather information u/s 133(6) of the Act. Needless to add the assessee shall be afforded adequate opportunity of being heard and to file details/submissions required, which shall be duly considered by TPO before deciding the issue.
7. Infosys BPO Ltd., 7.1 The ld AR for the assessee submitted that this company, Infosys, BPO Ltd., should be rejected/excluded from the list of comparables for the following reasons:-
(i) Brand Value, intangibles, functionally different According to the ld AR, this company has its delivery centres around the globe, whereas the assessee renders services only from India. It is submitted that while the assessee only provides call centre services, Infosys BPO Ltd., has multiple lines of business and renders high end services in the nature of KPO services. It is also submitted that Infosys BPO Ltd., has huge intangible amounts and high brand value. As per the FAR analysis, Infosys BPO Ltd., bears full fledged risk, whereas the assessee operates at minimal risk. It is submitted that on the basis of the above facts, Infosys BPO Ltd., is functionally different and IT(TP)A No.2055/B/16 24 not comparable to the assessee and therefore should be rejected as a comparable.
(ii) Extraordinary event during the year The AR submitted that during the year, Infosys BPO Ltd., acquired the Portland Group PTY Ltd., which is an extraordinary event and could affect its comparability.
In support of assessee's claim for rejection/exclusion of M/s Infosys BPO Ltd., from the list of comparables, the ld AR placed reliance on, inter alia, the decision of the co-ordinate bench in the case of (i) CGI Information Systems & Management Consultation Pvt. Ltd., in ITA No.183/Bang/2017 dated 11/4/2018 for asst. year 2012-13.
7.2 Per contra, the ld DR for revenue supported the orders of the authorities below in including this company in the final set of comparables.
7.3 We have heard the rival contention and perused and carefully considered the material on record; including judicial pronouncement cited. We find that on similar facts, a co-ordinate bench of this Tribunal in the case of CGI Information Systems & Management Controls Pvt. Ltd., for asst. year 2012-13 (Supra) directed that Infosys BPO Ltd., be excluded from the final list of comparables as it is not comparable with a company merely providing ITES, because of its brand value and extraordinary IT(TP)A No.2055/B/16 25 events in the previous years relevant to asst. year 2012-13 viz., the acquisition of an Australia based company which had effect on its profits. Following the aforesaid decision of the co-ordinate bench in the case of CGI Information Systems & Management Consultants Pvt. Ltd., for asst. year 2012-13, we hold and direct that M/s Infosys BPO Ltd., be excluded from the final set of comparables.
8. BNR Udyog Ltd., (Seg- Medical Transcription) 8.1 The ld AR for the assessee submitted that BNR Udyog Ltd., (Seg - Medical Transcription) ('BNR') should be rejected and excluded from the final set of comparables for the following reasons:-
(i) Functionally Different According to the ld AR for the assessee, this company 'BNR' is functionally different as it is engaged in multiple business lines, i.e IT & ITES, e-governance and construction activities.
(ii) Fails the RPT filter of 25% on entity basis as segmental transaction details of medical transcription are not available.
(iii) Incorrect Margin Computation Without prejudice, the ld AR submits that as per segmental information the medical transcription segment has earned revenues of Rs.147.40 lakhs whereas in Notes 2-19, sub schedule to the IT(TP)A No.2055/B/16 26 profit and loss account, revenue from medical transcription services is shown at Rs.138.55 lakhs The margins therefore need to be corrected.
8.2 The ld DR for Revenue supported the orders of the authorities below and submitted that in similar fact situation and on similar contentions by the assessee, a co-ordinate bench of this tribunal in the case of Indegene Pvt. Ltd., in its order in IT(TP)A No.591/Bang/2017 for asst. year 2012-13 dated 2/8/2017 had remanded the issue of comparability of this company 'BNR' to the file of the TPO for fresh examination.
8.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncements cited. From the details on record, it is seen that the contentions of the assessee that the company u/s BNR Udyog Ltd., is functionally different and fails the RPT filter at the entity level. We find from the record that the bench marking of 'BNR' has been done only at the medical transcription segment and issue of RPT has not been urged before the AO/DRP. From a perusal of the decision of the co-ordinate bench of this Tribunal in the case of Indegene Pvt. Ltd., in IT(TP)A No.591/Bang/2017 for asst. year 2012-13, we find that the issue of comparability of 'BNR' has been remanded to the file for the TPO for fresh consideration in tune with its observations at para 10.3.2 thereof, the relevant portion of which are extracted hereunder:-
IT(TP)A No.2055/B/16 27 "Since in the year under consideration, there are 3 segments, how much of the RPT expenses pertain to each of the segments requires examination and we find that this aspect has not been analyzed by either the TPO or the assessee. While it is clear from the TPO's order that if the benchrnarking is done only for the medical transcription segment, then the RPT pertaining to that segment only should be considered. However, since how much of the RPT pertain to the medical transcription segment has not been determined by either the TPO or the assessee, we deem it appropriate and proper to remand the matter of comparability of this company MIs BNR Udyog Ltd., to the file of the TPO for determination of the issue afresh in line with our observation above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file submissions/details in this regard which shall be duly considered by the TPO before deciding the issue We hold and direct accordingly."
8.3.2 Following the above decision of the coordinae bench in the case of Indegene Pvt. Ltd., for A.Y. 2012-13 (Supra) to which one of us is party, and considering the factual matrix involved, that how much RPT pertains to the medical transcription has not been IT(TP)A No.2055/B/16 28 determined by either the TPO OR the assessee, we deem it appropriate and proper to remand the issue of comparability of this company, M/s BNR Udyog Ltd., to the file of the TPO for determination afresh in line with the observations above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file details/submissions in this regard, which shall be duly considered by the TPO before deciding the issue. The TPO is accordingly directed.
9. TCS E-serve Ltd., ('TCS')
9.1 Before us, the ld AR for the assessee submitted that this company TCS E-Serve Ltd ('TCS') should be rejected and excluded from the final list of comparables for the following reasons:-
(1) Functionally different The assessee contends that this company deals with various verticals of business, ie., it renders BPO services to customers in the Banking, Financial services and Insurance domain, and also provides high end KPO services and therefore it is functionally different from the assessee in the case on hand. It is also contended that TCS bears full fledged risk, whereas the assessee bears only minimum risk. In support of the contention that this company is functionally different and therefore ought to be rejected as a comparable, the assessee, inter alia, placed reliance on the following ITAT decisions :-
IT(TP)A No.2055/B/16 29
(i) Baxter India Pvt. Ltd [TS-694-ITAT-2017(DEL)-TP] and
(ii) XL Health Corporation India P Ltd in IT(TP)A No.2311/Bang/2016.
9.2 The ld DR for revenue placed reliance on the orders of the authorities below. The ld DR submitted that, in all fairness in the facts and circumstances of the case, the matter ought to be remanded to the file of the TPO for fresh coordination, as was held in the decision of the co-ordinate bench in the case of Indegene Pvt. Ltd., in IT(TP)A No: 591/Bang/2013 dated 2/8/2017 for AY 2012-13.
9.3.1 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncements cited. From the details on record we observe that while the assessee has contended that the services rendered by this company, M/s TCS E-serve Ltd, are high end KPO services, it has not brought out as to which of these are the services that would come under Technical services. On the other hand, we also notice that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate bench of ITAT-Bangalore in the case of Indegene Pvt Ltd for A.Y. 2012-13 (supra) has remanded the matter of comparability of this company to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out above and following the IT(TP)A No.2055/B/16 30 decision of the co-ordinate bench in the case of M/s Indegene Pvt Ltd., (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd., to the file of the TPO for fresh consideration in the light of our above observations. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details/submissions in this regard.
10. Excel Infoways Ltd (Seg-IT/BPO) ('Excel') 10.1 The ld AR for the assessee submitted that this company, M/s Excel Infoways Ltd., ('Excel') should be rejected and excluded from the list of comparables for the following reasons:-
(i) Fails employee cost filter of 25% The ld AR submitted that in the segmental report, the details relating to employee cost allowable to each segment is not available and therefore the filter is to be applied at the entity level, where it fails the employee cost filter of 25% since its Employee Cost/Operating revenue is approx 13.05%.
(iii) Peculiar Economic Circumstances It is submitted that as per the Annual Report of this company, 'Excel', it has peculiar economic conditions impacting the earnings of the year under consideration and consequent abnormal volatility in profits.
IT(TP)A No.2055/B/16 31 In support of the assessee's contentions for exclusion of this company from the list of comparables, the ld AR placed reliance, inter alia, on the decisions of co-ordinate Bench of the tribunal in the case of CGI Information Systems & Management Consultations P Ltd., for AY 2012-13 (supra) and of ITAT Delhi in the case of M/s Baxter India P Ltd V ACIT in ITA No. 6158/Del/2016 for A.Y. 2012-13.
10.2 Per contra, the ld DR for Revenue supported the orders of the authorities below. Reliance was placed on the decision of the co-ordinate bench in the case of XL Health Corporation India P Ltd., in IT(TP)A No. 2311/Bang/2016 dt 9/2/2018 for A.Y. 2012-
13. 10.3.1 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial decisions cited. The assessee seeks exclusion of this company M/s Excel Infoways Ltd., on grounds of failing the employee filter cost filter of 25% at the entity level in the absence of details of such transactions at the segmental level and also for the reason that there were abnormally high profit margins over the years. In the case of CGI Information Systems & Management Consultants Pvt. Ltd., for 2012-13 (supra), cited by the assessee, this company was rejected as a comparable on the grounds of consistent diminishing revenue and it was also engaged in the business of software testing, verification and validation of software at the time of implementation and data centre management activities. In the case IT(TP)A No.2055/B/16 32 of XL Health Corporation India P Ltd., also for A.Y. 2012- 13(Supra), relied on by the ld DR, this company was retained as a comparable since the coordinate Bench observed that the assessee in that case had not led or filed any evidence to support its contention that this company 'Excel' had failed the employee cost filter. These two decisions (supra), in our view, would not apply to the fact situation prevailing in the case on hand.
10.3.2 In the case on hand, from a careful perusal of the factual material before us, we find that the assessee's contentions that this company, 'Excel' had failed the employee cost filter of 25% has not been examined, either by the TPO or admittedly by the assessee, at the segmental level. Similar is the position with regard to volatility of profits/peculiarity of economic circumstances. In this view of the matter, we deem it appropriate to remand the issue of comparability of this company, M/s Excel Infoways back to the file of the TPO for examination and verification of the assessee's contentions on the issue of abnormality of profits and of failing of the employees cost filter of 25% at segmental level, for which the AO may gather information u/s 133(6) of the Act. Needless to add, the assessee shall be afforded adequate opportunity of being heard and to file details/submissions required, which shall be duly considered by the TPO before deciding the issue.
11 (i) Accentia Technologies Ltd., ('Accentia') IT(TP)A No.2055/B/16 33
(ii) Jindal Intellicom Ltd., ('Jindal') 11.1 Both these companies 'Accentia' and 'Jindal' were selected by the assessee in its TP study. In proceedings u/s 92CA of the Act, the TPO also accepted and selected both these companies as being functionally comparable to the assessee as can be seen at pg 17 and 18 of the TPO's order. According to the assessee, no objections were raised against their inclusion in the final set of comparables before the DRP, but however the DRP suo moto rejected and excluded these two companies from the list of comparables.
11.2 We have heard both the parties in the matter and perused and carefully considered the material on record. The basic facts not in dispute are that the above two companies, 'Accentia' and 'Jindal' were selected as comparables both by the assessee in its TP study and the TPO as per his order u/s 92CA of the Act. We find that, as contended, the DRP has suo moto rejected these two companies as comparable without the assessee having raised any objections to their inclusion in the final set of comparables. We have carefully perused paras 3.20 and 3.21 of the DRP's order and find that the DRP has not adduced any proper reasoning as to why these companies should be excluded from the list of comparables, in spite of the fact that no objections to their inclusion has been raised by the assessee. In these circumstances, we deem it appropriate to set aside the DRP's order excluding these two companies from the list of comparables and restore the issue of comparability of these two companies to the file of the TPO for fresh adjudication.
IT(TP)A No.2055/B/16 34 Needless to add, that the assessee will be afforded adequate opportunity of being heard in the matter and to file submissions/details required, which shall be considered by the TPO before deciding the matter.
12 In respect of the Transfer Pricing grounds raised at D-1 to 11 (supra), the ld AR of the assessee urged and pressed before us in the course of hearing only for (i) Exclusion of 5 comparable Companies from the list of comparables and (ii) Inclusion of 2 companies in the list of comparables.
Therefore all other grounds raised on TP issues in the aforesaid grounds not being pressed or urged before us are rendered infructuous and accordingly dismissed as not pressed.
13 Grounds A,B,C, H and I were not pressed or urged before us and are therefore rendered infructuous and consequently dismissed as not pressed.
14 Ground F - MAT Credit u/s 115JA 14.1 The ld AR for the assessee submitted that the assessee had claimed MAT credit u/s115JA of the Act for A.Y's 2009-10 to 2011-12 which has not been allowed by the AO both in the draft order of assessment and the impugned final order of assessment. It was prayed to grant the MAT credit claimed.
IT(TP)A No.2055/B/16 35 14.2 We have heard both parties in the matter and perused the material on record. We direct the AO to examine and verify the record in respect of the assessee's claim for MAT credit and allow the same in accordance with law.
15. Ground No:G - Interest u/s 234 B of the Act 15.1 In this ground (supra), the assessee denies itself liable to be charged interest u/s 234B of the Act. The charge of interest is consequential and mandatory and the assessee has no discretion in the matter. This proposition has been upheld by the Hon'ble Apex Court in the case of Anjum H. Ghaswala (252 ITR 1) (SC) and we, therefore uphold the AO's action in charging the assessee, the said interest. The AO is, however, directed to re-compute the interest chargeable u/s 234B of the Act while giving effect to this order.
16. In the result, the assesses appeal for A.Y. 2012-13 is partly allowed.
Order pronounced in the open court on 8th August, 2018.
Sd/- Sd/-
(N.V VASUDEVAN) (JASON P BOAZ)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Bangalore
Dated : 8/8/2018
Vms
IT(TP)A No.2055/B/16
36
Copy to :1. The Assessee
2. The Revenue
3.The CIT concerned.
4.The CIT(A) concerned.
5.DR
6.GF
By order
Sr. Private Secretary, ITAT, Bangalore IT(TP)A No.2055/B/16 37
1. Date of Dictation .................................
2. Date on which the typed draft is placed before the dictating Member .........................
3. Date on which the approved draft comes to Sr. P.S..............................
4. Date on which the fair order is placed before the dictating Member ....................
5. Date on which the fair order comes back to the Sr. P.S. .......................
6. Date of uploading the order on website...................................
7. If not uploaded, furnish the reason for doing so ................................
8. Date on which the file goes to the Bench Clerk ....................
9. Date on which order goes for Xerox & endorsement.......................
10. Date on which the file goes to the Head Clerk ................
11. The date on which the file goes to the Assistant Registrar for signature on the order .....................................
12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order ...............................
13. Date of Despatch of Order.
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