Care Management International Private Limited (Merged with Cotiviti India Private Limited), Hyderabad V. Deputy Commissioner of Income Tax, Circle-1(2), Hyderabad

ITA 2117/Hyd/2017

AI Insights

The case involves M/s. Cotiviti India Private Limited, which appealed against the order of the Assessing Officer concerning the assessment year 2013-14. The primary issues revolved around the computation of Arm's Length Price for ITES provided by the appellant and the imposition of notional interest on delayed receipts from associated enterprises. The appellant contested the exclusion and inclusion of certain comparables used by the TPO and challenged the application of the Related Party Transaction (RPT) filter. The Tribunal found that the TPO did not fully comply with the DRP's directions regarding the comparables and the assessment of delayed receivables, leading to the remand of these issues back to the TPO.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302956 (ITAT-HYDERABAD)
• Duration Of Justice: 5 year(s) 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB-A
• Next Hearing Date: 22-02-2023
• Assessment Year: 2013-2014
• Appeal Filed On: 12-12-2017
• Other Referred Cases: Hyundai India Motors (P) Ltd
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: C.A SRIPRADA
• Keywords: Transfer pricing; Notional interest
• Section: 154; 143(3); 142(1); 143(1); 144C; 143(2)

Judgement Text

ITA 2117 of 2017 Page 1 of 12 आयकर अपीलीय अधिकरण, हैदराबाद पीठ IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Shri R.K. Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.2117/Hyd/2017 Assessment Year: 2013-14 M/s. Cotiviti India Private Limited (merged entity of Care Management International (P) Ltd Hyderabad. PAN:AAGCA2813C Vs. Dy. Commissioner of Income Tax, Circle 1(2) Hyderabad (Appellant) (Respondent) Assessee by : C.A Sriprada Revenue by: Shri Rajendra Kumar, CIT(DR) Date of hearing: 23/02/2023 Date of pronouncement: 07/03/2023 ORDER Per Laliet Kumar, J.M This appeal filed by the assessee is directed against the order passed by the Assessing Officer u/s 143(3) r.w.s. 144C of the I.T. Act relating to A.Y. 2013-14. The grounds raised by the assessee reads as under: “1. The learned Transfer Pricing Officer (hereinafter referred to as "TPO") erred in computation of Arm's Length Price with respect to provision of information technology enabled services by the Appellant which has resulted in transfer pricing addition of Rs.85,98,023/- and the Hon'ble Dispute Resolution Panel in confirming the same. In doing so, they have grossly erred: ITA 2117 of 2017 Page 2 of 12 A. By rejecting the comparable companies selected/accepted by the assessee on unjustifiable grounds. B. By comparing the assessee with companies which have an entirely different functional and risk profile. C. By applying RPT filter as 25% of total turnover instead of 15% as applied by the assessee. D. By not making suitable adjustments to account for differences in the risk profile of the assessee vis-à-vis the comparable Companies. 2. The learned TPO erred by charging notional interest on delayed receipt and balance outstanding from Associated Enterprise which has resulted in a proposed addition of Rs.23,26,382/-. Under this ground, we have the following specific objections: A. The learned TPO erred by charging notional interest on delayed receipt and closing balance outstanding from associated enterprises without any basis. B. The learned TPO erred by charging notional interest for the entire year under consideration irrespective of the date of receipt and credit period. In doing so, the learned TPO and learned Assessing officer erred by not following the directions of the Hon'ble Dispute Resolution Panel. 2. Facts of the case, in brief, are that the assessee company engaged in the provisions of ITES, e-filed its return of income for the A.Y 2013-14 on 22.11.2013 admitting a total income of Rs.1,94,13,860/- under the normal provisions and book profit of Rs.2,86,11,005/- under the provisions of section 115JB. The return was processed u/s 143(1) and subsequently the case was taken up for scrutiny under CASS. Statutory notices u/s 143(2) & 142(1) were issued to the assessee and the AR of the assessee appeared before the Assessing Officer from time to time and filed the requisite details. ITA 2117 of 2017 Page 3 of 12 3. At the outset, the learned AR submitted that the assessee is restricting the Transfer Pricing issues raised before the Tribunal in respect of four comparables i.e. exclusion of Infosys BPO and Capgemeni Business Services India Ltd and 2 inclusion of Informed Telecom India Ltd and Jindal Infotech (P) Ltd. Exclusion of Infosys BPO 4. Before us, the Ld.AR had submitted that this company is having income in foreign currency as per note 2.21 of the annual report to an extent of ₹ 13,56,23,69,842/- and the revenue from management services are to an extent of ₹ 18,31,33,77,884/-. Thus, this company failed to on the export turnover filter as applied by the TPO. As per the assessee, the export turnover filter on calculation would come to 74.06%. It was submitted by the Ld.AR that the above said fact was brought to the notice of the DRP and the DRP had issued the direction to the TPO to reject the company as comparable if the exporting filter is not found to be applicable in the facts of the case. Despite the direction of the DRP, the assessing officer had included the above said comparable. The assessee had filed the application under section 154 of the Income Tax Act, 1961. The same is still pending before the assessing officer and no effect has been given in the light of the direction of the DRP to exclude the comparable. Besides that the Ld. AR had also submitted that this company is not comparable with the assessee company, as its functional profile is different than that of the assessee. Besides that it was also the contention that the company is having high turnover which is not comparable with the assessee company and is also ITA 2117 of 2017 Page 4 of 12 having strong brand value because of that also this company cannot be compared with the assessee company. 5. On the other hand, the learned DR heavily relied on the order of the lower authorities. 6. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee. Admittedly, in the present case, the TPO has applied the export turnover filter of 75% as seen from the record. However, the assessee before us demonstrated that this company fails in the export turnover. In our view, it would be appropriate, if the TPO examine afresh and find out whether this comparable fulfills the export turnover filter or not. Needless to say that the above said exercise shall be carried out by the Assessing Officer / TPO after granting the opportunity of hearing to the assessee. 7. In the result, ground raised by the assessee for exclusion of Infosys BPO is allowed for statistical purposes. Capgemeni Business Services India Ltd: 8. The next comparable is Capgemeni Business Services Ltd. In this regard, our attention was drawn to the order passed by the DRP/TPO by the learned AR for the assessee. The basic argument of the learned AR is that this company is not comparable with the assessee as it fails on the RPT filter applied by the TPO. It is the submission of the learned AR that the related party transaction of the company with its AE exceeds 25% and was 82.32%. Therefore, this company cannot be treated as a good ITA 2117 of 2017 Page 5 of 12 comparable for the purpose of benchmarking on international transactions. He relied upon the order of Hyundai India Motors (P) Ltd in this regard. 9. The learned DR relied upon the orders passed by the lower authorities. 10. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail in the case of Capgemeni Business Services India Ltd. The Assessing Officer/TPO applied the RPT filter of 25%. Before the TPO no such objection was raised. However, this specific objection was raised by the assessee before the learned DRP, but for the reason best known to the DRP, it failed to adjudicate the ground raised by the assessee in so much so whereby it was submitted that comparable company fails on account of non fulfilment of RPT filter. As the case may be, since the facts has not been analysed by the DRP/TPO, it would not be possible for us to decide the issue of failure of RTP filter at the appellate stage. In the light of the above, we remand the issue back to the file of the Assessing Officer/TPO with a direction to examine the functional similarities / dissimilarity of Capgemeni Business Services India Ltd having regard to the application of RPT filters after affording opportunity of being heard to the assessee. ITA 2117 of 2017 Page 6 of 12 Informed Technology India (P) Ltd 11. We now come to the inclusion of Informed Technology India (P) Ltd. In this regard, our attention was drawn to the order passed by the TPO wherein the learned TPO had rejected the inclusion of this comparable on the pretext that the financial information for the current year is not available at the time of finalization of the comparables. It was submitted by the learned AR that the assessee had submitted the financials before the TPO and our attention was drawn to page 190 of the Paper Book Vol.I. It was further submitted that feeling aggrieved by the order, the matter was agitated before the DRP and the DRP has also not considered the submissions of the assessee. The reason given by the DRP that this comparable Informed Technologies India Ltd deriving income from two verticals namely software development and ITES and the segmental financial is not available. It was submitted by the learned AR that the Informed Technologies India Ltd is deriving revenue only from the BPO ITES and therefore, it qualifies to be taken as a good comparable. He relied upon the decision of Hyundai India Motors (P) Ltd in this regard for the above said proposition. 12. Per contra, the learned DR relied upon the order passed by the lower authorities. 13. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail in the case of Informed Technologies India (P) Ltd. In our view, the grievance of non- ITA 2117 of 2017 Page 7 of 12 consideration of the financials by the TPO are not available as the said financials have been examined by the DRP before which the assessee has preferred this appeal. Nonetheless, the short grievance before is that the Informed Technologies Ltd is deriving revenue from ITES business and is not deriving income from software development. In our view, this is a factual finding which required examination of facts by the lower authorities and therefore, we deem it proper to remand this issue of inclusion of Informed Technologies to the file of TPO with a direction to find out from the record, whether Informed Technologies Ltd derives its revenue only from the BPO or not. Besides that, the learned TPO is also directed to examine the financial profile of the Informed Technologies Ltd and whether this company is functionally similar with the assessee com. 14. Next company comparable is Jindal Intellicom Ltd. In this regard the learned AR drew the attention of the Bench to page 215 of the Paper Book where the functions carried out by Jindal Intellicom Ltd has been mentioned to the following effect: “CONSERVATION OF ENERGY,TECHNOLOGY ABSORPTION AND FOREIGN EXCHANGE EARNINGS AND OUTGO Conservation of Energy The Company, being a call center functions in the BPO industry, and is not covered under Companies (Disclosures of particulars in the report of the Board of Directors) Rules 1988 It consumes power only for call Centre equipment and for office requirements therefore furnishing information pertaining Conservation of Energy & Technology Absorption is not applicable to our Company” 15. Thereafter, the learned AR drew the attention of the Bench to page 227 of the Paper Book where the notes on financials are placed wherein it is mentioned as under: ITA 2117 of 2017 Page 8 of 12 ITA 2117 of 2017 Page 9 of 12 16. The learned AR also drew the attention of the Bench to page 241 of the Paper Book wherein the financials of the company are mentioned and the income and earnings in foreign currency has been restricted to income from call services. Thereafter, the learned AR drew our attention to page 287 of the Paper Book wherein the TPO rejected the inclusion of this comparable on the pretext that this company is having functional dissimilarities with that of the assessee. Lastly, he drew our attention to page 803 of the Paper Book wherein the learned DRP has held that the issue of inclusion of Jindal Intellicom Ltd and the finding of the DRP at page 803 (Vol.III). 17. It was the contention of the learned AR that this company is required to be included and he relied upon the decision of the Tribunal. 18. The learned DR on the other hand, relied upon the orders of the lower authorities. 19. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail in the case of Jindal Intellicom Ltd. Undoubtedly, the profile of the assessee is required to be examined in the context of the services rendered by the assessee as well as by Jindal Intellicom Ltd. The lower authorities on examination has come to the conclusion that this company is not comparable with that of the assessee as it is into software development and is deriving revenue from call centre. However, the above said aspect has not been examined by the lower ITA 2117 of 2017 Page 10 of 12 authorities. Therefore, we deem it appropriate to remand back this issue to the file of the TPO/Assessing Officer with a direction to examine the financials of the Jindal Intellicom Ltd and whether this comparable is with the assessee or not. Further, the TPO is directed to find out after using its power as available under the law whether this company is earning revenue from the software development services or not. 20. In the light of the above discussions, the TP ground raised by the assessee are decided. It is made it clear that the TPO shall include inclusion/exclusion after affording reasonable opportunity of being heard to the assessee and pass a speaking order considering the decisions of the Tribunal / Judicial High Courts in this regard. 21. The last ground raised before us is on interest delayed receivable. In this regard out attention was drawn to page 816 of the paper book wherein the DRP had issued directions to the TPO which reads as under: “in the light of above discussions and the above referred we judicial pronouncements are of the view that 'deferred receivables' would constitute international transaction and has to be benchmarked in regard to delay beyond the reasonable credit period and accordingly we reject the various pleas raised. We also direct the TPO to examine the assessee's claim of credit period of 120 days, and if it is so, allow credit period of 120 days. and accordingly, imputation of interest may be restricted in regard to invoices where there was delay beyond the credit period and proportionate to the number of days of delay. The SBI rates for short term deposits may be adopted as the ALP interest rate. The TPO may accordingly recompute the interest to be may imputed and the adjustment to be made to total income.” 22. It was submitted that the above said aspect has not been examined by the TPO despite directions issued by the Tribunal. It is also submitted that the assessee has also filed application u/s 154 before the lower authorities and the same is ITA 2117 of 2017 Page 11 of 12 being for adjudication. The learned TPO has not given effect to the directions issued by the TPO and therefore, fresh directions are required to be issued to the TPO. 23. Per contra, the learned DR relied on the decisions of the lower authorities. 24. We have heard the rival arguments made by both the sides, perused the orders of the AO and the learned DRP and the Paper Book filed by the assessee in detail. The law is fairly settled with respect to the binding nature of the DRP u/s 144C(13)(10) whereby the TPO/Assessing Officer are directed to give effect to the issues and directions given by the DRP. Despite specific directions issued by the DRP, the TPO/Assessing Officer are not complying with the same in letter and spirit. Therefore, we reiterate and repeat the directions issued by the DRP and direct the TPO to give effect to the directions given by the DRP forthwith. 25. In the result, appeal filed by the assessee is allowed for statistical purposes. Order pronounced in the Open Court on 7 th March, 2023. Sd/- Sd/- (R.K. PANDA) ACCOUNTANT MEMBER (LALIET KUMAR) JUDICIAL MEMBER Hyderabad, dated 7 th March, 2023. Vinodan/sps ITA 2117 of 2017 Page 12 of 12 Copy to: S.No Addresses 1 M/s. Cotiviti India Private Limited (merged entity of Care Management International (P) Ltd Hyderabad, 4 th & 5 th Floor, Western Pearl, Sy. No.13, Kondapur, Hyderabad – 500 084. 2 Dy.CIT, Circle 1(2) 4 th Floor, Aayakar Bhavan, Basheerbagh, Hyderabad 500016 3 Chief CIT (International Taxation) (SZ) Bengaluru 4 Pr. CIT-1, Hyderabad 5 DR, ITAT Hyderabad Benches 6 Guard File By Order