TRX Technologies India Pvt. Ltd. Vs DCIT (ITAT Bangalore)
The assessee is contending to exclude from the list of comparables M/s. Acropetal Technologies Limited (Seg.), M/s. Accentia Technologies Limited, ICRA Online Ltd. and Jeevan Scientific Technology Limited. In similar circumstances and for the same assessment year, the jurisdictional Tribunal in the case of Aspect Technology Centre (India) Pvt. Ltd. Vs. ITO (supra) has held that the above companies are functionally dissimilar and cannot be taken as a comparable.
ITAT held that Since the profile of the assessee and that of the Aspect Technology Centre (India) Pvt. Ltd. Vs. ITO (supra) being similar and the assessment year being the same (i.e. A.Y. 2011-12), we follow the co-ordinate Bench of the Tribunal in the case of Aspect Technology Centre (India) Pvt. LTd. Vs. ITO (supra) and direct the AO / TPO to exclude M/s. Acropetal Technologies Limited (Seg.), M/s. Accentia Technologies Limited, ICRA Online Ltd. and Jeevan Scientific Technology Limited from the list of comparables.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal at the instance of Revenue is directed against the assessment order dt. 27.01.2016, passed under Section 143(3) r.w.s. 144C of the Income Tax Act, 1961 (‘the Act’), in pursuance to the directions of Dispute Resolution Panel (‘DRP’). The relevant Assessment Year is 2011-12.
2. The learned Authorised Representative at the time of hearing had argued only Ground Nos.7, 8 & 12. The Ground Nos.7, 8 & 12 read as follows :
“ 7. a) The authorities below erred in treating Accentia Technologies Ltd. as a comparable company though it is functionally different from the appellant on the facts of the case.
b) The authorities below erred in treating Acropetal Technologies Ltd. as a comparable company though it is functionally different from the appellant on the facts of the case.
c) The authorities below erred in treating ICRA Online Ltd. as a comparable company though it is functionally different from the appellant on the facts of the case.
d) The authorities below erred in treating Jeevan Scientific Technology Ltd. as a comparable company on the facts of the case.
e) The authorities below further erred in not giving effect to the directions of the DRP with regard to the discrepancies that existed in the figures adopted for computing the margin of the comparable M/s. Jeevan Scientific Technologies Ltd. and thus the comparable needs to been rejected even on this ground.
f) The learned DRP erred in not considering the submissions made by the appellant with regard to functionality of the comparables which is sine qua non for passing the order and thus the order passed needs to be set aside on the facts and circumstances of the case.
8. a) The TPO, DRP and the Assessing Officer erred in not reducing the working capital adjustment of 1.47% from the final ALP margin though the TPO had specifically provided for the same as per TP order.
b) Without prejudice, the Working Capital Adjustment that ought to have been provided at 1.47% is very low and needs to be substantially enhanced on the facts of the case.
12. The assessing officer erred in not following the directions of the DRP to exclude such comparables which do not fall within the turnover filter of 1-200 crores which amounts to judicial indiscipline and therefore the order of assessment passed needs to be set aside on the facts of the case.”
3. The assessee has also filed additional grounds which read as follows :
“ 1. The comparable M/s. Mindtree Ltd. originally selected by the appellant needs to be excluded as it fails the turnover filter of 1-200 Crores as well as 10 times multiple under the facts and circumstances of the case.
2. The comparable M/s. Acropetal Technologies Ltd. originally selected by the appellant needs to be excluded as the company is functionally different from the appellant and segmental information is not available under the facts of the case.
3. The comparable M/s. Accentia Technologies Ltd. originally selected by the appellant needs to be excluded as the company is functionally indifferent on the facts of the case.
4. The appellant craves leave to add, alter, delete or substitute any of the grounds urged above.
5. In view of the above and other grounds that may be urged at the time of the hearing, the appellant prays that the objections be considered in the interest of equity and justice.”
3.1. The learned Counsel for the assessee submitted that the above additional grounds raised are not urged specifically in the original grounds of appeal at the institution of the appeal. However, these grounds do not involve any new investigation of facts otherwise on record. Therefore, it is prayed that the additional ground may be admitted for advancement of substantial cause and justice. In this context, the learned Counsel for the assessee relied on the judgment of the Hon’ble Supreme Court in the case of National Thermal Power Co. Ltd. Vs. CIT reported in 229 ITR 383 (SC) and decision of Hon’ble Mysore High Court in the case of Gundathur Thimmappa & Sons Vs. CIT reported in 70 ITR 70 (Mysore).
3.2. The additional grounds raised does not require investigation of any new facts. All the facts for adjudication of the additional grounds are on record. Therefore for advancement of substantial cause and justice in the light of the judgment of the Hon’ble Supreme Court in case of National Thermal Power Co. Ltd. (supra), the additional grounds are admitted for adjudication.
4. The brief facts are as follows :
The assessee is an Indian company engaged in the business of rendering back office and related services including invoicing, collection, administration, support services includes customer services, ticketing, contract loading etc. to its Associated Enterprises (AEs) i.e. ;TRX Inc, USA, TRX Europe Limited and TRX Germany GmbH, Germany (herein referred to as AEs). The services rendered by the assessee to its AEs is predominantly related to travel and tourism industry. The assessee is also engaged in providing software maintenance support to TRX portfolio of software products and solutions which is essential an ITES. For the Assessment Year 2011-12, the Return of Income was filed on 30.09.2011, declaring total income of Rs.28,81,107, after claiming deduction under Section 10A of the Income Tax Act, 1961 (‘the Act’) amounting to Rs.2,94,52,337. As per the 92CE Report, the assessee has entered into international transactions with its AEs amounting to Rs.20,71,82,109 (both software support services and business support services). The net margin of the assessee company was calculated in the TP Study at 16.08% (Operating Margin) whereas the net margin of the comparable companies selected by the assessee in its TP Study was calculated at 9.59%. Therefore it was submitted that the margin of the international transactions of the assessee with its AEs be accepted as Arm’s Length in the facts and circumstances of the case.
5) The assessment was taken up for scrutiny and in the course of assessment proceedings the matter was referred to the Transfer Pricing Officer (TPO). The TPO rejected some of the comparables selected by the assessee, included some new comparables and arrived at Arm’s Length Price (‘ALP’) margin of 24.77% for the year under consideration. The TPO after providing for Working Capital Adjustment of 0.13%, proposed ALP adjustment of Rs.1,83,99,556. The final set of 10 comparables considered by the TPO and its operating profit to operating cost are as follows :
