CASE LAWS

2017-TII-01-HC-MUM-INTL

GKN SINTER METALS PVT LTD Vs ACIT: BOMBAY HIGH COURT (Dated: January 11, 2017)

Income tax - Section 271(1).

Keywords - MAP procedure - penalty - mutual settlement & withdrawal of appeals.

The assessee preferred present petitions challening notices issued u/s 271(1)(c) for imposition of penalty and seeking interim stay thereupon, in view of the fact that since the dispute between the Revenue and assessee for the subject A.Ys stood settled under the Mutual Agreement Procedure as provided under Article 27 of the IndoUK DTAA, the Revenue had no jurisdiction to act contrary.

On appeal, the HC held that,

Whether an assessee deserves grant of stay in a matter where the Revenue has acted contrary to the terms of settlement after inviting the assessee to settle the disputes - YES: HC

+ prima facie, we find that the communication made by the Revenue to the assessees, suggested the settlement arrived at under the MAP procedure would be given effect to only if the assessee withdraws its pending Appeals before the Tribunal. The assessees acted upon the same and withdrew its pending Appeals on the basis that differences with the Revenue stands settled. Inherent in a settlement is giving up some of your perceived rights in consideration of the other sides also giving up some of its perceived rights. The communication does not make a whisper of the fact that the penalty proceedings under the impugned notices would continue, notwithstanding the fact that the assessee would withdraw its pending Appeals on merits of the dispute. Thus, the assessee acted upon the communication by withdrawing its Appeals under the bona fide impression as communicated by the Revenue. It would have been a different matter, if the Revenue had communicated to the assessee that the penalty proceedings in respect of impugned notices would continue, then the assessee could have taken an informed decision whether or not to withdraw its Appeals. It is not fair of the Revenue to invite a party to settle the dispute without fully indicating the terms of the settlement which was in its mind. Therefore, the impugned notices of penalty are stayed pending final disposal of appeal.

Assessee's stay application allowed

2017-TII-26-ITAT-BANG-TP

E4E BUSINESS SOLUTIONS INDIA PVT LTD Vs DCIT: BANGALORE ITAT (Dated: January 13, 2017)

Income tax - ALP - AE - BPO services - functional dissimilarity - brand value - segmental break up & TNMM.

The assessee is engaged in the business of customer relationship management services and related business process outsourcing services through a variety of customer contract channels such as voice, e-mail, chat and web based services. It acquired all the business from e4e Tech Support (India) Private Limited, a group company, with effect from April 1, 2007 on slump sale basis. Consequently, it has also started rendering infrastructure management services, which is in the nature of IT Enabled Services. For the A.Y 2011-12, it had e-filed its return declaring a taxable income of INR 11,13,09,999/-. In its TP study, it had adopted TNMM as the MAM to arrive at the ALP in respect of ITES, the PLI adopted is operating profit to the total costs as applicable to the AE segment alone. On this basis, it had computed its PLI @ 15.74 percent. It has selected 9 comparable companies with an arithmetic mean of 15.82 % and since it fell within the specified range of 5 percent variation, treated the price of its international transaction at arm's length. However, the TPO rejected its TP Documentation for the reason, inter alia, that it had used multiple year data, re-determined the ALP considering 10 companies as comparable with certain filters, which included 3 & 7 companies selected by the assessee & new ones, respectively, with "TNMM" as the "MAM" with an adjusted margin at 31.02% after giving working capital adjustments. Thus, the TPO made an addition of Rs.136,642,740/- to the returned income.

On appeal, the ITAT held that,

Whether companies engaged in diversified medical activities can be compared to a pure call centre service provider - NO: ITAT

+ as far as Accentia Technologies is concerned, it is seen that the Co-ordinate Bench in assessee's own case in IT(TP)A.1845/Bang/2015 & IT(TP)A.1777/Bang/2013 for A.Y 2009-10 2016-TII-07-ITAT-BANG-TP, has observed that this company is engaged in diversified activity of medical transcription, medical coding, billing, receivable management. Thus it is clear that the said company is engaged in the healthcare activity and providing specific services of medical transcription, medical coding, medical billing etc. It is also to be noted that these activities are quite different from the service of contact centre provided by the assessee to its AE which is purely in the nature of call centre. Therefore, Accentia Technologies Ltd was declared as functionally uncomparable company with the services provided by the assessee to its AE;

Whether a KPO company can be compared to a BPO/ITES low end service provider - NO: ITAT

+ as far as Acropetal Technologies Ltd. is concerned, it is seen that the Co-ordinate Bench in assessee's own case in IT(TP)A.1765/Bang/2013 & IT(TP)A.1783/Bang/2013 for A.Y 2008-09 2015-TII-506-ITAT-BANG-TP, has observed that the coordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt ltd. held this company to be functionally different from the assessees performing ITES / BPO back end support services whereas, Acropetal Technologies Ltd.: segmental revenues show that its major source of income is from providing engineering design services and information technology services which are knowledge process outsourcing services (KPO) and not BPO / ITES low end BP0 services, like those performed by the assessee in the case on hand;

Whether a company having huge economies of scale and brand value can be compared to a captive service provider - NO: ITAT

+ as far as Infosys BPO Ltd is concerned, it is seen that the Co-ordinate Bench in assessee's own case in IT(TP)A.1765/Bang/2013 & IT(TP)A.1783/Bang/2013 for A.Y 2008-09 2015-TII-506-ITAT-BANG-TP, has observed that the coordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. for Assessment Year 2008-09 has excluded this company i.e. Infosys BPO Ltd. from the list of comparables to low end ITES / BPO support service providers as it is functionally different being an established market leader, enjoying huge brand value and goodwill, with huge economies of scale and diversity and geographical dispersion of customers. Presence of a brand commands premium price and the customers would be willing to pay, for the services/products of the company. Infosys BPO is an established player who is not only a market leader but also a company employing sheer breadth in terms of economies of scale and diversity and geographical dispersion of customers. The presence of the aforesaid factors will take this company out of the list of comparables;

+ as far as iGate Global Solutions Ltd. is concerned, it was argued that this company renders both IT and ITES services and provides both onshore and offshore services, that as per the segmental information provided by iGate, it is engaged in the business of software development and services, contact center services and IT Enables services is considered as the only business segment, that amalgamation of iGate Global Solutions Sdn Bhd, Malaysia with the company during the period ended 31st March 2010, that this company also acquired majority stake in Patni Computer Systems Ltd. Although, the assessee objected this case before the TPO, the TPO inter alia, rejected it stating that iGate Global Solutions Ltd considers all services under ITES. In the facts and circumstances, this issue is set aside to the TPO who would re-adjudicate it after affording due opportunity to the assessee. Therefore, the assessee has made out a case in its favour from the above decisions. Following them, the TPO is directed to exclude Accentia Technologies Ltd, Acropetal Technologies Ltd & Infosys BPO Ltd from the list comparables.

Case remanded