Transcend MT Services Pvt. Ltd. Vs DCIT (ITAT Delhi)
Assessee has also argued for exclusion of Infosys BPO Ltd, which is having the turnover more than 31.29 times, and TCS E serve Ltd having turnover of 62 times larger than the assessee does. Therefore, for the reasons given by us for exclusion of I gate global Ltd, we also direct the learned transfer-pricing officer to exclude Infosys BPO Ltd and TCS E Serve Limited from the comparability analysis.
FULL TEXT OF THE ITAT JUDGEMENT
1. This appeal is filed by TRANSCEND MT SERVICES PRIVATE LIMITED (formerly known as Heartland Information And Consultancy Services Private Limited) (referred to as the Assessee/Appellant) against the order of THE DEPUTY COMMISSIONER OF INCOME TAX, Circle 25 (2), New Delhi (The AO) passed u/s 143 (3) read with Section 144C (13) of The Income Tax Act, 1961 (The Act) for assessment year 2010 – 11, wherein pursuant to the direction of the learned Dispute Resolution Panel [ The ld DRP] the total income of the assessee was assessed at Rs 55,806,130/– against the returned income of Rs. 23,564,600/– , wherein the only adjustment is made with respect to the arm’s-length price of the International Transactions pursuant to the order of THE LEARNED ADDITIONAL COMMISSIONER OF INCOME TAX, TRANSFER PRICING OFFICER – I (2), New Delhi [ The Ld TPO] passed u/s 92CA (3) of The Act on 9/1/2014, which was subject to the direction of the Learned Dispute Resolution Panel dated 2/12/2014 wherein the arm’s-length price of the transaction of the assessee of Rs 360,154,748/– was determined at Rs 378,162,485/– and thereafter an adjustment was made of ₹ 32,241,526/-.
2. The assessee has raised the following grounds of appeal:-
“1. That on the facts and circumstances of the case and in law, the AO has erred in completing the assessment of the Appellant under section 143(3) read with section 144C(13) of the Act, at an income of Rs. 5,58,06,130 in pursuance to the directions issued by the DRP, as against returned income of Rs. 2,35,64,600.
2. That on the facts and circumstances of the case and in law, reference made by the AO to the TPO is void ab-initio and bad in law as the AO failed to provide copy of approval granted by the Commissioner of Income tax and affording any opportunity of being heard to the Appellant, in violation of the principle of natural justice.
3. That on the facts and circumstances of the case and in law, the AO/ Transfer Pricing Officer (“TPO”) / DRP have erred in making an upward TP adjustment of Rs. 3,22,41,526 in respect of the transaction pertaining to provision of back office medical transcription services to its associated enterprises (“AEs”), alleging that the same were not at arm’s length.
4. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Income-tax Rules, 1962 (“Rules”) for determination of thearm’s length price (“ALP”) of provision of back office medical transcription services to AEs.
4.1 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in ignoring the provisions of Rule 10B(4) of the Rules which allows use of multiple year data of comparable companies for the purpose of determination of the ALP.
4.2 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily rejecting / modifying the search process and filters adopted by the Appellant for the bench marking its international transactions of provision of back office medical transcription services to AEs.
4.3 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in arbitrarily rejecting the comparable companies selected by the Appellant applying arbitrary / subjective search filters.
4.4 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in selecting functionally dissimilar companies with high turnovers, abnormally high margins / super profits, abnormal or peculiar circumstances and/or substantial related party transactions during the given year.
4.5 That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in not providing appropriate economic adjustments on account of differences in risk profile between the Appellant and the comparable companies.
5. That on the facts and circumstances of the case and in law, the AO / DRP/ TPO failed to understand and appreciate intent and spirit of Rule 10B(1)(e)(ii) of the Rules.
6. That on the facts and circumstances of the case and in law, the AO / DRP / TPO erred in not allowing Appellant benefit of 5 percent range as provided under the proviso of section 92C(2) of the Act.
7. That on the facts and in the circumstances of the case and in law, the AO has erred in charging interest under sections 234B of the Act.”
3. Brief facts of the case shows that assessee is a company wherein 99.99% of the shareholding is held by a Mauritius parent and 0.01% by a US company. It is engaged in providing medical transcription services to its associated enterprise and had centers in Bangalore and Delhi. It has responsibility for transcribing medical data and information services. During the previous year assessee provided back office medical transcription services to its associated enterprise amounting to Rs 360,138,248/– at the markup of 22.18% on total operating cost. Incorporating the same, assessee filed its return of income on 27/9/2010 declaring an income of ₹ 23,564,600/-. The case of the assessee was picked up for scrutiny and the international transactions were referred to the learned Transfer Pricing Officer for determining arm’s-length price.
4. The assessee benchmarked its transaction using Transactional Net Margin Method [TNMM] as the Most Appropriate Method[MAM]using Operating Profit/Total Cost[OP/TC]as the Profit Level Indicator [PLI] selecting six comparable companies where there average margin was 11.86% using the multiple year data, assesse computed its own margin at 22.19% and stated that its international transactions are at arm’s-length.
5. The learned Transfer Pricing Officer examined the transfer pricing study report of the assesse, issuedshow cause notice challenging the benchmarking analysis and accept / reject metrics along with filters used by the assessee. Learned TPO proposed new filters using single year data (current year data), proposed to reject all five other comparables only retaining one comparable i.e. cosmic global Ltd. After considering the submissions of the assessee , learned transfer pricing officer selected five other comparable whose average margin was 33.83% using single year data and determined arm’s-length price of the international transactions of Rs 360,154,748 at ₹ 39,44,29,873 and proposed an adjustment u/s 92CA of The Act dated 9/1/2014 of ₹ 34,275,125/–. Consequently the draft assessment order was passed on 6 March 2014 where the income of the assessee was computed after including the above adjustment at ₹ 57,839,720/–.
6. Assessee approached the Dispute Resolution Panel who passed its direction on 2 December 2014, disposing the objections of the assessee directing the learned TPO to modify the adjustment. Consequently, the learned TPO finally computed the adjustment to the ALP of international transaction at ₹ 32,241,526 whereby following six comparable companies was selected having mean margin of 33.14% of PLI ofoperating profit/operating cost.
