Conduent Business Services India LLP Vs ACIT (ITAT Bangalore)
Conclusion: MAP rate should be applied by AO/TPO for the rest of the transitions of Rs.25,09,87,512 which was 4.42% of the total transactions. Accordingly, AO was directed to apply the MAP rate on the rest of the transactions for determination of the margin on the international transactions.
Held: Assessee was engaged in 2 segments software development services , IT Enabled Services and Marketing Support Services during the impugned assessment year to US affiliate Companies and Non-US affiliate Companies. Assessee submitted that in terms of resolution dated 13.12.2021 the entire transaction of software development which comprised of USA portion alone was settled under MAP at a margin of 17.27%. Assessee had undertaken deemed international transaction in the nature of BPO support services with non US AE’s and unrelated parties amounting to Rs.25,09,87,512/-. In this regard, assessee had filed additional ground as per rule 29 of the Income-tax Rules and as per written synopsis he requested that total transaction which consisted of 4.42% and requested to apply MAP margin rate. Considering the argument of the Revenue that the margins might be affected because of the geographical risks, the transaction undertaken by assessee consisting of 4.42% was made in the European countries. Considering the objections of the Revenue, the lower authorities had not given any findings in regard to margin will affect as per the geographical area. Respectfully following the judgment of the Hon’ble Bombay High Court of Bombay and the decision of the co-ordinate bench, the prayer of assessee was accepted and MAP rate should be applied by the AO/TPO for the rest of the transitions of Rs.25,09,87,512/- which was 4.42% of the total transactions. Accordingly, AO was directed to apply the MAP rate on the rest of the transactions for determination of the margin on the international transactions. Further in support of MAT credit brought forward from the previous year, AO was directed to verify the correct poison and give credit as per law.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
This is an appeal filed by the assessee against the final assessment order passed by the AO u/s 143(3) r.w.s 144C(13) of the Income-tax Act dated 30/10/2018 on the following grounds of appeal:-
That on the facts and circumstances of the case and in law:
A. Grounds of appeal relating to corporate tax matters 1.The learned AO/DRP erred, in law and in facts, in making an addition for undisclosed income on account of an inadvertent error made by the Appellant in the Service Tax Return without specifying the relevant provisions of the Act.
2. The learned AO/DRP erred, in law and in facts, in not providing the relief of additional Minimum Alternate Tax credit brought forward from earlier years, which the Appellant is entitled to set off against the tax liability computed by the Learned AO on account of above additions made in the final order of assessment.
3. The learned AO/DRP erred, in law and in facts, in not providing the claim of withholding tax credit as per the revised return of income in case of the Appellant.
B. Grounds of appeal relating to transfer pricing matters common to software development services segment and Information Technology enabled services segment
4. The learned AO/TPO/DRP erred, in law and in facts, by not appreciating the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that apellant’s international transaction is not at arm’s length.
5. The learned AO/TPO/DRP erred, in law and in facts, by determining the arm’s length margin/price using only FY 2013-14 data, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements.
6. The learned AO/TPO/DRP erred, in law and in facts, by not making suitable adjustments to account for differences in the working capital levels of the Appellant vis-à-vis the corn pa rabies.
7. The learned AO/TPO/DRP erred, in law and in facts, by not making suitable adjustments to account for differences in the risk profile of the Appellant v/s-a -v/s the comparables.
8. The learned AO/TFO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using turnover less than 1 crore as a comparability criterion.
9. Without prejudice to above Ground No. 5, the learned AO/TPO/DRP erred, in law and in facts, by not adopting the filter of 10% to 10 times of the turnover of the Appellant as a comparability criterion.
10. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using software development service/ITeS income less than 75% of the operating income as a comparability criterion.
11. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using export turnover less than 75% of the total turnover as a comparability criterion.
12. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using the employee cost less than 25% of the total revenues as a comparability criterion.
13. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using the filter of companies having different accounting year for rejecting the comparable companies (i.e., companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months).
14. The learned AO/TPO/DRP erred, in law and in facts, by not adopting the filter of manufacturing plus trading income less than 50% of the sales to reject companies as adopted by the Appellant in its TP documentation.
15. The learned AO/TPO/DRP erred, in law and in facts, by using the information by exercising powers under section 133(6) of the Act.
16. The learned AO/TPO/DRP erred in law and in facts in computing the a WAct ie without giving the benefit of 3
percent under the proviso to section 920 of
C. Grounds of appeal relating to transfer pricing matters specific to software development services segment
17. The learned AO/TPO/DRP erred , in law and in facts, by erroneously including following companies based on unreasonable comparability criteria:
a) Larsen & Toubro Infotech Limited (‘LTI)
b) Infosys Limited (‘Infosys)
c) ICRA Techno Analytics Limited (‘ICRA)
d) Persistent Systems Limited (‘Persistent)
e) Mindtree Limited (‘Mindtree)
f) Cigniti Technologies Limited (‘Cigniti)
g) Thirdware Solutions Limited (‘Thirdware)
h) Tata Elxsi Limited (‘Tata Elxsi)
i) R S Software (India) Limited
18. Without prejudice to above Ground No. 4, the learned AO/TPO/DRP erred, in law and in facts, by excluding the following companies as appearing in Appellant’s transfer pricing documentation based on unreasonable comparability criteria:
a) Goldstone Technologies Limited
b) Akshay Software Technologies Limited (‘Akshay Software)
c) Evoke Technologies Private Limited (‘Evoke)
19. Without prejudice to above Ground No. 17, the learned AO/TPO/DRP erred, in law and in facts, by committing factual/computational errors while calculating the operating margins of following companies:
a) /C R A Techno Analytics Limited
b) Infosys Limited
c) Tata Elxsi Limited
d) Grounds of appeal relating to transfer pricing matters specific to Information Technology enabled services segment
20. The learned AO/TPO/DRP erred , in law and in facts, by erroneously including following companies based on unreasonable comparability criteria:
a) Infosys BPO Limited (‘Infosys BPO)
b) Micro gene tic Systems Limited (‘Micro genetic)
c) BNR Udyog Limited (‘BNR Udyog)
d) Micro land Limited
e) Cross domain Solutions Private Limited (‘Cross domain)
21. Without prejudice to above Ground No. 4, the learned AO/TPO/DRP erred, in law and in facts, by excluding the following companies as appearing in Appellant’s rncing documentation based on unreasonable comparability criteria:
a) Al/sec Technologies Limited (‘Al/sec)
b) Informed Technologies India Limited (‘Informed Technologies)
c) Jindal Intel//corn Limited (‘Jindal)
d) Sundered Business Services Limited (‘Sundaram)
22. Without prejudice to above Ground No. 20, the learned AOITPO/DRP erred, in law and in facts, by committing factual/computational errors while calculating the operating margins of following companies:
a) Micro/and Limited
b) B N R Udyog Limited (segmental)
E. Grounds of appeal relating to transfer pricing matters specific to trade receivables
23. The learned AO/TPO/DRF erred, in law and in facts, by re-characterizing the outstanding receivables as loan transaction and not considering the busines/ commercial expediencies of the arrangement, thereby computing notional interest on the same.
24. The learned AO/TPO/DRP erred, in law and in facts, in charging interest in relation to outstanding receivables due from Associated Enterprises of the Appellant.
F. Grounds of appeal relating to other matters
25. That the learned AC/DRP erred, in law and in facts, in levying the interest of INR 16,71,36,310 under Section 234B of the Act.
The Appellant submits that each of the above grounds is independent and without prejudice to one another.
The Appellant craves leave to add, alter, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon’ble Tribunal to decide on the appeal in accordance with the law.”
2.1 The assessee has also filed additional grounds:-
26. In the facts and in the circumstances of the case and in law, the Arm’s Length margin determined under MAP between the Indian and US Competent Authorities for the BPO Support Services transaction ought to also be applied to the international/deemed international transactions relating to provision of similar BPO Support Services not covered by MAP. Without prejudice to the above grounds requesting the application of Arm’s Length margin determined under the MAP, to the international/ deemed international transactions of the Appellant not covered under the MAP, our grounds of appeal contending on the factual & technical he merits of the case are here below:
27. The learned AO/TPO/DRP erred, in law and in facts, by not appreciating the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules, conducting a fresh economic analysis for the determination of the ALP in connection with the impugned international transaction and holding that the Appellant’s international transaction is not at arm’s length.
28. The learned AO/TPO/DRP erred, in law and in facts, by determining the arm’s length margin/price using only FY 2013-14 data, which was not available to the Appellant at the time of complying with the transfer pricing documentation requirements.
29. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using ITeS income less than 75% of the operating income as a comparability criterion, rejecting the filter applied by the Appellant in this regard to exclude comparables with trading/manufacturing income greater than 50% of sales.
30. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using export turnover less than 75% of the total turnover as a comparability criterion.
31. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using the employee cost less than 25% of the total revenues as a comparability criterion.
32. The learned AO/TPO/DRP erred, in law and in facts, by rejecting certain comparable companies identified by the Appellant using the filter of companies having different accounting year for rejecting the comparable companies (i.e., companies having accounting year other than March 31 or companies whose financial statements were for a period other than 12 months).
33. The learned AOITPO/DRP erred, in law and in facts, by using the information by exercising powers under section 133(6) of the Act.
34. The learned AO/TPO/DRP erred in facts and in law, by erroneously including following companies based on unreasonable comparability criteria:
(a) Infosys BPO Limited
(b) Microgenetic Systems Limited
(c) BNR Udyog Limited
(d) Microland Limited
(e) Crossdomain Solutions Private Limited
35. Without prejudice to above, the learned AO/TPO/DRP erred, in law and in facts, by excluding the following companies appearing in the Appellant’s transfer pricing documentation based on unreasonable comparability criteria:
(a) Alisec Technologies Limited
(b) Jindal Intellicom Limited
(c) Informed Technologies India Limited
(d) Sundaram Business Services Limited
36. Without prejudice to above, the learned AOITPO/DRP erred, in law and in facts, by committing factual/computational errors while calculating the operating margins of following companies:
(a) BNR Udyog Limited
(b) Micro land Limited
37. The learned AO/TPO/DRP erred, in law and in facts, by not making suitable adjustments to account for differences in the risk profile of the Appellant vis-a-vis the comparables.
38. The learned AOITPO/DRP erred, in law and in facts, in computing the arm’s length price without giving the benefit of 3 percent under the proviso to section 920 of the Act. The Appellant craves leave to add, alter, amend, vary, omit or substitute the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal, so as to enable the Hon’ble Tribunal to decide on the appeal in accordance with the law.”
3. Since the assessee has filed additional grounds of appeal, in which legal issue is involved, therefore, respectfully following the decision of the National Thermal Power Co. Ltd. Vs. CIT, 229 ITR 383 (SC), the additional ground filed by the assessee is admitted.
4. The brief facts of the case are that the assessee filed return of income on 29/11/2014 declaring a total income of Rs.77,56,32,720/-. Subsequently, on 30/03/2016 the assessee revised his return of income at Rs.77,73,32,230/- . The case was selected for scrutiny under CASS and other statutory notices were issued to the assessee. The assessee is engaged in the business of software development, IT enabled services and market support services to its group companies. From the information submitted by the assessee in which it was observed that the assessee had undertaken international transactions, therefore, after obtaining approval from the Pr.CIT, the case was referred to the TPO. The TPO analyzed the documents and observed that the assessee has undertaken international transaction with its associated enterprises as under:-
