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05-04-2019, Travelex India, Tribunal Mumbai

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2 months 1 week ago #9106 by amit
Section -
Order Date - 05-04-2019
Favouring - Assessee Partly
Court - Tribunal Mumbai
Appellant - Travelex India Pvt. Ltd.
Respondent - DCIT
Justice - SAKTIJIT DEY JM & RAJESH KUMAR AM
Citation - 419Taxpundit141
Appeal No. - ITA no.8192/Mum./2010
Asstt. Year - 2006–07

Order

PER : SAKTIJIT DEY

Aforesaid appeal has been filed by the assessee challenging the assessment order dated 27th September 2010, passed under section 143(3) of the Income Tax Act, 1961 (for short “the Act”) for the assessment year 2006–07, in pursuance to the direction of the Dispute Resolution Panel–II (DRP), Mumbai.

2. Ground no.1, being general in nature, does not require adjudication.

3. At the time of hearing of appeal, the learned Authorised Representative submitted that on the instructions of the assessee he does not want to press ground no.5. Hence, ground no.5 is dismissed as not pressed.

4. Ground no.6, being pre–mature at this stage, does not require adjudication.

5. In ground no.2, the assessee has challenged the addition made of ` 66,55,541, on account of transfer pricing adjustment.

6. Brief facts relating to this issue are, the assessee, an Indian company, is a wholly owned subsidiary of Travelex Plc, U.K. and is part of Travelex Group. The assessee provides Information Technology Enabled Services (ITES) to its overseas Associated Enterprise (AE). In its transfer pricing study, the assessee benchmarked the price charged for provision of ITES to the AEs by selecting Transactional Net Margin Method (TNMM) as the most appropriate method with operating profit/total cost (OP/TC) as the profit level indicator (PLI). By undertaking a search in the databases assessee selected 20 companies ascomparables with arithmetic mean of 9.93%. Since, the margin shown by the assessee at 16.04% was higher than the mean margin of the comparable companies, the assessee claimed the price charged to the AE to be at arm's length. The Transfer Pricing Officer, however, did not accept the claim of the assessee. After verifying the transfer pricing study report, the Transfer Pricing Officer observed that the search process adopted by the assessee to select comparables is not reliable. Therefore, rejecting the transfer pricing study report of the assessee and many of the comparables selected, the Transfer Pricing Officer undertook a fresh search in the databases to select comparables by using the data for financial year 2005–06. In this process, the Transfer Pricing Officer selected 13 comparables with arithmetic mean of 24% as against the margin shown by the assessee at 16.04%. This resulted in an upward adjustment of ` 66,55,541, to the price charged by the assessee to the AE. The adjustment to the arm's length price sugges ed by the Transfer Pricing Officer was considered for addition by the Assessing Officer in the draft assessment order.

7. Though, the assessee raised objections before the DRP against the transfer pricing adjustment, however, the DRP rejected the objections of the assessee.

8. In terms with the directions of the DRP, the Assessing Officer passed the impugned assessment order.

9. Before us, the learned Authorised Representative submitted, if two of the comparables selected by the Transfer Pricing Officer viz., Vishal Information Technologies Ltd. and Maple e solutions Ltd. are excluded, assessee’s margin will be within ±5% of the average margin of the rest of the comparables. Proceeding further, the learned Authorised Representative submitted, Vishal Information Technologies Ltd. cannot be considered as a comparable as the business model of the company is totally different from the assessee. He submitted, major portion of the work of the aforesaid company was outsourced to third parties which is evident from the low employee cost of the company. He submitted, compared to the low employee cost of Vishal Information Technology Ltd., assessee’s employee cost is 58.02%. Thus, he submitted, this company cannot be treated as comparable. As regards Maple e–solutions Ltd., the learned Authorised Representative submitted, this company cannot be considered as a comparable to the assessee primarily due to the fact that the financial data of the company is unreliable. He submitted, different Benches of the Tribunal across India have rejected this company as a comparable due to the aforesaid reason. In support of his contention, learned Authorised Representative relied upon a number of decisions.

10. The learned Departmental Representative relied upon the observations of the DRP and the Transfer Pricing Officer.

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