Delhi Call Centre Pvt. Ltd., New Delhi vs Assessee

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 1 ITA NO. 5359/Del/2010

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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ITA NO. 5359/Del/2010

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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ITA NO. 5359/Del/2010

"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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