ITA NO. 5359/Del/2010
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH "I", NEW DELHI
BEFORE SHRI H.S. SIDHU, JUDICIAL MEMBER
AND
SHRI J.S. REDDY, ACCOUNTANT MEMBER
I.T.A. No. 5359/DEL/2010
A.Y. : 2006-07
Delhi Call Centre Private Limited, Income Tax Officer,
I-10, Lajpat Nagar-II, VS. Ward 10(1),
New Delhi IP Estate, CR Building,
(PAN: AABCD9233C) New Delhi - 110002
(APPELLANT) (RESPONDENT)
Assessee by : Sh. Ramit Katyal, CA & Puneet
Chugh, CA
Department by : Sh. Judy James, Spl. Counsel
Date of Hearing : 23-3-2015
Date of Order : 25-3-2015
ORDER
PER H.S. SIDHU : JM
This appeal by the Assessee is directed against the
assessment order dated 19.10.2010 of the Assessing Officer passed
u/s. 143(3) r.w.s. 144C of the I.T. Act, 1961 pertaining to
assessment year 2006-07, on the following grounds:-
1. That on the facts and in the circumstances of the case the
Learned Assessing officer was not justified in making an
addition of Rs. 129,32,857 to the returned income on account
of adjustment to the arm's length price of the 'international
transactions' of call centre services on the basis of the order
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passed under section 92CA(3) of the Act by the Transfer
Pricing Officer (TPO) & as per the directions of Dispute
Resolution Panel (DRP).
2. That the DRP erred on facts and in law in giving the direction
confirming the rejection of the following comparable
companies identified by the assessee:
S.No. Name of company OP/OC% Reasons for rejection
1. Surevin Internet 3.47% Low revenue. Call centre
Services Ltd. activities amounting to
Rs. 91.24 lacs as against
filter of 1 crore.
2. Shreejal Info Hubs Ltd. 4.93% Functionally not
comparable. In the
business of information
vending and rendering
services to call centres.
3. Optimus Global -28.85% Functionally not
comparable. Persistent
losses
4. Firstsource Solutions 7.12% Rejected on ground of
related Solutions party
transactions
5. NIIT Smartserve Ltd. -20.78% Related party
transactions & Persistent
losses
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2.1 That the DRP was not justified in giving directions rejecting the
objections and evidence furnished by the appellant company without
passing a speaking order.
2.2 That the TPO& DRP erred on facts and in law in rejecting
Surevin Internet Services Limited as a comparable company holding
that its turnover from call centre activities are less than Rs.1 crore.
2.2.1That the TPO& DRP erred on facts and in law in rejecting
Surevin Internet Services Limited as a comparable company holding
that it has accumulated losses to the extent of Rs.3.92 million as
against the share capital of RS.2.88 million and ignoring the
reserves and surplus of the company.
2.3 That the TPO & DRP erred on facts and in law in rejecting
Shreejal Info Hubs Limited on the ground that is functionally
different from the assessee.
2.4That the TPO & DRP erred on facts and in law in rejecting
Optimus outsourcing company Limited holding that it is not
functionally comparable and that it is incurring persistent losses.
2.4.1 That the TPO & DRP ought to have considered the submission
of the appellant that the grounds on which Optimus outsourcing
company Limited has been rejected then ALLSEC Technologies
limited an accepted company also ought to have been rejected.
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2.5 Whether merely because a company has incurred loss I can it be
excluded from the comparables ?
2.6 That on the facts and in the circumstances of the case I the
Learned TPO & DRP were not justified in rejecting NIIT smart Serve &
First Solution as comparable companies.
3.That on the facts and circumstances of the case the Ld. TPO & DRP
ought to have included B2K corp. as a comparable company for
benchmarking the arm's length price.
4. That the DRP failed to consider the fresh transfer pricing study
submitted by the Appellant company.
5. That the TPO &DRP erred on facts and in law in not appreciating
that undertaking the benchmarking analysis applying TNMM by
considering only 2 high profit margin companies give skewed /
absurd results and is not representative of the industry margin.
6. That the TPO/ DRP erred on facts and in law in not appreciating
that the assessee was a low risk captive service provider and
appropriate adjustment in the operating profit margin of the
assessee or the comparable companies was required to be made on
this account in terms of rule lOB of the Income Tax Rules.
7. That the TPO/DRP erred on facts and in law in not considering
financials of the associated enterprises placed on record while
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proposing adjustment on account of difference in arm's length price
of international transactions.
7.1That on the facts and circumstances of the case, there could not
be any allegation as to the international transactions not being at
arm's length considering that the associated enterprises have
earned marginal profit.
8. That the TPO & DRP erred on facts and in law in not appreciating
that the income of the assessee is exempt under section 10A of the
Income Tax Act and hence, there could not be any motive for the
transfer of profits outside India.
9.That the TPO & DRP erred in law in not allowing benefit to the
extent of (+/-)5% in terms of the proviso to Section 92C (2), while
determining the arm's length price of the 'international
transactions'.
10.That the assessing officer erred on facts and in law in disallowing
Rs. 30,600/- on amortization of preliminary expenses incurred by the
assessee on the issue of shares, holding that the assessee in not an
industrial undertaking and is not entitled to these expenses under
section 35D of the Act.
11.That the assessing officer erred on facts and in law in disallowing,
under section 35D of the Act, an expense of Rs. 4,85,591/- incurred
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by the assessee as preoperative expenses, holding that the
assessee company has already claimed expenses to the extent
allowable, in earlier years.
12. That the assessment order framed is bad in law.
13. That the Levy of interest u/s234B is excessive & without
authority of law.
14. That the appellant craves for leave to add, alter, modify any of
the grounds of appeal mentioned above at the time of hearing.
2. The brief facts in the case are that the return of income
declaring NIL income after claiming deduction of Rs. 1,25,45,750/-
u/s. 10A was filed on 27.11.2007 and the same was processed u/s.
143(1). The case was selected for scrutiny under CASS and notice
u/s. 143(2) was sent to the assessee company. The TPO has passed
the order u/s. 92CA(3) dated 29.7.2009 wherein he had made an
adjustment of Rs. 1,94,59,762/- in the Arms Length Price of the
assessee company. Thus, the AO made the addition of Rs.
1,94,59,762/- in the income of the assessee company being
difference between the Arm's Length Price vide his draft assessment
order dated 27.11.2009. Aggrieved with the aforesaid order of the
AO, assessee filed Appeal before the DRP and the DRP vide its order
dated 30.8.2010 passed u/s. 144C of the I.T. Act has upheld the
draft assessment order. Thereafter the AO assessed the income of
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the assessee at Rs. 1,29,32,857/- vide his order dated 19.10.2010
passed u/s. 143(3) of the I.T. Act, 1961.
3. Aggrieved with the assessment order, assessee is in appeal
before the Tribunal.
4. Ld. Counsel of the assessee has reiterated the contentions
raised in the grounds of appeal and stated that the AO was not
justified in making an addition of Rs. 129,32,857/- to the returned
income on account of transfer pricing adjustment to the
`international transactions' of call centre services on the basis of the
order passed u/s. 92CA(3) of the Act by the TPO as confirmed by the
directions of the DRP. He took us through the order of the DRP and
submitted that this order is cryptic and non speaking. He pointed
out that none of the contentions raised in the appeal were
addressed by the DRP. Hence, he submitted that the assessment
order framed is bad in law.
5. On the other hand Ld. DR relied upon the order of the
Assessing Officer as well as the order of the DRP and requested to
uphold the same.
6. We have heard both the counsel and perused the records. At
the threshold, we find that the Ld. DRP vide its order dated
30.8.2010 passed u/s. 144C of the I.T. Act has adjudicated the issue
as under:-
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"The objections relates to addition of Rs.
1,94,59,762/- on account of adjustment of the arm's
length prices of international transactions computed
by the TPO in his draft assessment order. The
addition has resulted on account of working of
OP/OC percentage on the basis of comparables.
Originally the assessee had taken 22 comparable
companies in the TP documents and had
subsequently reduced it to 8 comparables only.
The TPO has rejected 5 of the proposed
comparables and worked out the OP/OC percentage
on the basis of 3 comparables arriving at the
average of 28.35% and applying it to determine the
adjustment figure of Rs. 1,94,59,762/-.
As regards rejection of comparables proposed by
the assessee the AO has given cogent and detailed
reasons for the same. We have gone through the
objections made by the assessee and after
considering the arguments put up by the
representatives and also the draft assessment order
and in view of the evidence produced by the
assessee's representative, we find that one of the
comparables i.e. Mapel E Solutions needs to be
taken out from the list of comparables proposed by
the TPO. The TPO is directed to work out the
adjustment accordingly.
As regards the other queries of the assessee the
same have been adequately answered by the TPO
in his draft order and we do not find any reason to
interference with rest of the draft order."
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7. From the above finding of the Ld. DRP, we find that the Ld.
DRP has not addressed any of the contentions raised by the
assessee and has not given reasons or findings on the rejection of
the comparables considered by the assessee. The Ld. DRP has
simply mentioned that the AO has given cogent and detailed
reasons for the same. In our considered opinion, the finding given
by the Ld. DRP is not a speaking one and is not sustainable in the
eyes of law. Therefore, in the interest of justice, we cancel the
assessment order dated 19.10.2010 passed u/s. 143(3) r.w.s. 144C
of the I.T. Act and remit back all the issues to the file of the Ld. DRP
with the directions to properly consider and examine the issues in
detail and give a finding on each of the contention raised by the
assessee in its appeal and pass a speaking order thereon.
8. In the result, the Appeal filed by the Assessee stands allowed
for statistical purposes.
Order pronounced in the Open Court on 25/3/2015.
Sd/- Sd/-
[J.S. REDDY] [H.S. SIDHU]
ACCOUNTANT MEMBER JUDICIAL MEMBER
Date 25/3/2015
"SRBHATNAGAR"
Copy forwarded to: -
1. Appellant -
2. Respondent -
3. CIT
4. CIT (A)
5. DR, ITAT TRUE COPY
By Order,
Assistant Registrar,
ITAT, Delhi Benches
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