TRAVELEX INDIA P.LTD,MUMBAI vs. ASST CIT 13(3)(2), MUMBAI

Brief facts relating to the Transfer Pricing Adjustments were brought to our notice by the Ld. AR and it was submitted that assessee has (A.Y: 2010-11) Travelex India Private Limited selected 15 comparables from search on Prowess and Capitaline data base with the mean operating profit to total cost (OP/OC) @14.27%. The comparables selected by the assessee are given below: -

As per form 3ECB, the assessee is having following two AES with whom it had international transactions during FY 2009-10: (i) Travelex Limited UK (ii) Travelex Limited (Australia)

The international Transactions reported by the assessee in the form of Form 3CEB are as under: -

The TPO after considering the comparables study submitted by the assessee, rejected the international transactions relating to provision of IT support services of ₹.7,84,44,748/- and proceeded to determine the arm’s length price adjustment by selecting the following final comparables as under: -

TPO determined the PLI of the tested party at 9.22% which is lesser than the requisite mean of the comparables 33.38%. Accordingly, he determined the arm’s length price at ₹.9,57,97,111/- and determined arm’s length price adjustment of ₹.1,73,52,363/-.

Before us, Assessee has raised following grounds in its appeal: - “1. On the facts and circumstances of the case and in law, the learned Transfer Pricing Officer ("TPO') and Assistant Commissioner of Income-tax- 13(3)(2) (AO), under the directions of Hon'ble Dispute Resolution Panel 11 CDRP) erred in determining the arm's length price of the international transaction for provision of Information Technology enabled Services ('ITeS') at Rs. 8,28,54,661 instead of Rs 7.84.44.748 and thereby making an adjustment of Rs. 44,09,913. The Appellant prays that the aforesaid adjustment be deleted.

On the facts and circumstances of the case and in law, the Learned AO has erred in disregarding the directions of the Hon'ble DRP of obtaining necessary clarification from HDFC bank and taking necessary action as mandated by law. The Learned AO made an addition of cash deposits amounting to Rs. 65,85,700 erroneously reported in the AIR information without providing adequate opportunity to the Appellant. The Appellant prays that the aforesaid addition be deleted.

On the facts and circumstances of the case and in law, the Learned AO has erred in granting short credit of TDS to the extent of Rs. 2,60,503. The Appellant prays that the Learned AO be directed to grant above credit of TDS.

Ground No. 1 is general in nature, accordingly, the same is not adjudicated.

Before us, with regard to Ground No. 2(d), Ld. AR submitted that it seeks the deletion of three (3) comparables which was retained by the DRP from the comparables selected by the TPO. Ld. AR submitted that it is seeking relief and exclusion of following three comparables i.e., (i) Cosmic Global Ltd., (ii) Informed Technologies India Ltd., and (iii) Infosys BPO Ltd.,

In this regard, Ld. AR submitted that Cosmic Global Ltd., is selected by the assessee originally and he brought to our notice Page No. 13 of the TPO order and submitted that majority of the services undertaken by this company are out sourced. He brought to our notice findings of the TPO at Page No. 13 of the TPO order and Page No. 5 of the DRP order wherein the assessee has submitted before DRP that Cosmic Global Ltd., is following different business model and majority of the activities are sub contracted. He brought to our notice translation charges have been paid to the vendors (2.18 crores) to the extent of 37.73% on sales (43.38% of total operating cost). However, DRP rejected objections raised by the assessee and retained the above comparables by rejecting the arguments

With regard to comparable Informed Technologies India Ltd., this is also originally selected by the assessee and Ld. AR submitted that TPO has retained this comparables. However, DRP has not given any finding. Therefore, he submitted that this comparable also having the same business model of Cosmic Global Ltd., because it also has high translation charges and low employee cost ratio. He further brought to our notice that employee cost to the total cost ratio was 36.79% compared to the 71.28% to the employee cost charged by the assessee. In this regard he relied

With regard to Infosys BPO Ltd., this is also originally selected by the assessee. He submitted that the Infosys BPO Ltd., has huge turnover and brought to our notice that TPO has not applied any turnover filter. Hence he brought to our notice Page No. 14 of the TPO order to highlight the huge revenue declared by them and he also brought to our notice Page No. 6 of the DRP order and submitted that the turnover declared by the Infosys BPO Ltd., is 143 times that of the assessee. He also brought to our notice Page No. 50 of the Paper Book to submit that while selecting the comparables even assessee has not selected the upper and lower limit for turnover filter. Therefore, this comparable has to be excluded considering the huge turnover and brand value of the Infosys BPO Ltd., when compared to the turnover of the assessee i.e., only 7,84,41,868/- in this segment. In this regard he relied on the decision of the Coordinate Bench in the case of Swiss Re Services India Private Ltd v. DCIT in ITA.No. 1898/Mum/2015 dated 06.01.2020. Further, he submitted that (A.Y: 2010-11) Travelex India Private Limited there are extraordinary events recorded in Infosys BPO Ltd., in this regard he brought to our notice Page No. 183 and 184 of the Paper Book.

Ld. DR objected to the submissions made by the Ld. AR and submitted that with regard to Cosmic Global Ltd., he submitted that assessee has accepted in previous three Assessment Years and assessee itself selected this comparable in previous two Assessment Years and further he submitted that assessee itself not contested before the TPO/DRP for selection of these comparable. With regard to the case laws relied by the assessee of Pune Bench in the case of Aptara Technologies Pvt Ltd., v. ACIT (supra) he submitted that profit alone is not to be compared year wise rather functions has to be compared. He vehemently argued that Cosmic Global Ltd., is a proper comparable to the assessee.

With regard to other comparables Ld.DR relied on the order of the TPO and further, submitted that the high turnover should not be a criteria for rejection and should not be ended up with cherry picking of the comparables and it has to be compared and analysed based on the functional comparability.

Considered the rival submissions and material placed on record, we observe that on similar facts the Pune Bench of the Tribunal in the case

Another aspect relating to the said concern was varying profitability shown by Informed Technologies Ltd. which is as under:- Particulars FY 2005-06 FY 2006-07 FY FY 2008- FY 2009- FY FY 2007-08 09 10 2010-11 2011-12 OP/OC -44.21% 34.71% 3.67% 22.61% 26.73% 6.97% 5.12% 25. Where comparable picked up by the TPO for the purpose of benchmarking the international transaction in the hands of assessee is showing such differential profitability earned from year to year, then such a concern cannot be picked up as being functionally similar because of abnormal profitability trend. In this regard, we find that Pune Bench of Tribunal in case of Cummins Turbo Technologies Ltd., UK Vs. DDIT (Int. Tax,) (supra) had also held that Informed Technologies Ltd., because of its abnormal profitability trend, is to be excluded from the final list of comparables. Accordingly, we hold so.”

Similarly, in the case of Eaton Technologies Private Limited v. ACIT in ITA.No. 519/PUN/2015 dated 16.08.2021 Pune bench of the Tribunal held as under: - (A.Y: 2010-11) Travelex India Private Limited “(ii) Informed Technologies Ltd. : 28 The TPO has discussed this company at page 51 of his order wherein the assessee has objected to the selection of this comparable in ITES segment. The assessee has contended this company should not be selected as comparable because in this case the AMD/sales ratio exceeds 3%. This was however selected as comparable by the TPO. That before the DRP also similar argument were taken by the assessee. The DRP at para 5.7.1 of its order observed that while deciding the comparability of Acropetal Technologies it had been held that filter AMD/sales is not appropriate for the captive companies engaged in the IT/ITES. Therefore, Informed Technologies was treated as functionally comparable with that of the assessee upholding the selection of comparable by the TPO.

The ld. AR reiterating the submissions made before the Subordinate Authorities took us through the annual report of the said company annexed at pages 247 to 294 in the Paper Book and at page 252 review of the companies has been dealt with. That at page 263 Balance Sheet and at page 264 P&L account has been annexed. Thereafter at page 270 of the Paper Book at Schedule 17 Clause K there is a segment reporting and it is stated therein this company is principally engaged in the business of business process outsourcing which is the only reportable segment as per Accounting Standard 17 issued by the Institute of Chartered Accountants of India on segment reporting. The ld. AR further relied on the decision of the Pune Tribunal in the case of Vishay Components (P.) Ltd. vs. ACIT (2017) 83 taxmann.com 319 (Pune-Trib.) and therein at para 40 the Tribunal has upheld the action of the TPO in correctly excluding Informed Technologies India Ltd. The relevant paras are extracted as follows :- ―40. Now, coming to the last two concerns i.e. Aditya Birla Minacs Worldwide Ltd. and Informed Technologies India Ltd., wherein Informed Technologies India Ltd. is providing KPO services. In respect of Aditya Birla Minacs Worldwide Ltd., the learned Departmental Representative for the Revenue has referred to the financial statements of the said concern and pointed out that the business over view talks of the KPO business carried

Further, in the case of Brintons Carpets Asia Pvt Ltd., v. DCIT in ITA.No. 1312/PUN/2015 dated 29.03.2019 the Pune Bench of the Tribunal held as under:

In the case of Swiss Re Services India Private Limited v. DCIT (supra) the Coordinate Bench of the Tribunal rejected the comparable of Infosys BPO Ltd., observing as under: - “21. So far as exclusion of Infosys BPO is concerned, we have seen that the assessee itself included Infosys BPO Ltd. in its TP study and furnished related data about this comparable. For exclusion of this comparable, the assessee raised additional ground of appeal, which we have admitted for adjudication. Before us, the ld. AR of the assessee vehemently submitted that the assessee inadvertently included as a comparable by the assessee itself in its Transfer Pricing Study, and there is no estoppel in law to exclude the comparable, if the same is not comparable with the assessee on functional comparability. Infosys BPO is a giant company with different risk profile and nature of services, has brand value and owns IPs unlike the assessee who broadly provides back office support service and hence not comparable to the assessee. We have seen that the Tribunal in case of Stream International Services (P.) Ltd. vs. ADIT (141 ITD 492 Mum-Trib), while considering the functional similarity/dissimilarity excluded this comparable by taking view that Infosys BPO is a market leader and a giant company with a different risk profile and nature of service, has brand value and hence not comparable to the assessee due to huge difference in the size and scale of the company. Further, we have noted that the TPO himself in A.Y. 2009-10 himself rejected this comparable on account of Multiple Functional Segments with huge allocated items. The Hon’ble Bombay High Court in CIT vs. Pentair Water India (P.) Ltd. (supra) while considering the question of law relating to the exclusion of this comparable on size and turnover filter affirmed the exclusion. The Hon’ble Delhi High Court in Sanvih Info Group (supra) also confirmed the exclusion of Infosys BPO being a giant company. We have further noted that by following the decision of Hon’ble Bombay High Court in CIT vs. Pentair Water India (P.)Ltd. (supra), the co-ordinate bench of Tribunal in Hapag Lloyd Global Services Ltd. vs. DCIT (ITA No. 7539/Mum/2014 held that the turnover of Infosys BPO is very high comparative to tested party and excluded and excluded this comparable. Considering the consistent view of Hon’ble Delhi High Court, Hon’ble Bombay High Court and co-ordinate bench of (A.Y: 2010-11) Travelex India Private Limited Tribunal, we are of the view that Infosys BPO is a market leader and a giant company with a different risk profile and nature of service, has brand value and hence not comparable to the assessee due to huge difference in the size and scale of the company. Therefore, we direct the AO to exclude Infosys BPO from final set of comparable as the same is not comparable with assessee, which is proving captive services.”

On the other hand, Ld.DR relied on the orders of the TPO.

Considered the rival submissions and material placed on record, we observe and noticed that assessee has submitted separate operational results for twelve (12) months which is relevant for comparable purpose before the TPO. However, TPO has not considered this information and proceeded to use the financial results submitted by the assessee for fifteen (15) months and accordingly, he rejected the same. Since assessee has preferred to accept the comparability study made by the TPO and finalized by the DRP and submitted objections only relating to three comparable which we have considered and adjudicated in our above

With regard to Ground No. 3, Ld. AR submitted that the Assessing Officer relying on the AIR report and reconciliation made an addition of unexplained cash deposits u/s. 69 of the Act to the extent of ₹.65,85,700/- Even though assessee has made a submission that assessee has not made any cash deposits in its bank account and further, it was submitted that assessee maintains current account. Further, he submitted that the Assessing Officer not only rejected the submissions of the assessee in draft assessment and further Assessing Officer sustained the addition with the observation that HDFC bank has not responded to the notices u/s.133(6) of the Act notices even though DRP has categorically gave direction to verify and reconcile the cash deposits made by the assessee with the HDFC bank. He prayed that suitable direction may be given in this regard.

On the other hand, Ld. DR relied on the order passed by the Assessing Officer.

With regard to Ground No. 4 and 5 of grounds of appeal wherein assessee has submitted that Assessing Officer has not granted TDS credit to the extent of ₹.2,60,503/- and short credit of self-assessment tax paid by the assessee to the extent of ₹.35,36,000/-. In this regard,

With regard to Ground No. 6 which is consequential in nature, accordingly, this ground is dismissed.

With regard to Ground No. 7 which is premature in nature accordingly this ground is also dismissed.

In the result, appeal filed by the assessee is partly allowed as indicated above.