DCIT, BANGALORE vs. M/S NIRVANA BUSINESS SOLUTIONS PVT. LTD.,, BANGALORE

Per Shri Jason P Boaz, A.M. : This appeal by Revenue is directed against the order of Commissioner of Income Tax (Appeals)-IV, Bangalore dt.30.11.2011 for the Assessment Year 2004-05. 2. Briefly stated, the facts of the case are as under :- 2.1 The assessee, a company providing BPO Services & Solutions in accounting, transaction support and customer care, filed its return of 2 IT(TP)A No.171/Bang/2012 income for Assessment Year 2004-05 on 31.10.2004 declaring loss of Rs.8,04,53,000. The return was processed under Section 143(1) of the Income Tax Act, 1961 (in short 'the Act') and the case was subsequently taken up for scrutiny. In view of the international transactions reported by the assessee, the case was referred under Section 92CA of the Act to the Transfer Pricing Officer (‘TPO’) for determining the Arm’s Length Price (‘ALP’) of international transactions entered into by the assessee in the year under consideration. The TPO as per his order under Section 92CA of the Act dt.22.12.2006, after examining the TP Study carried out by the assessee, applied TNMM as the Most Appropriate Method (‘MAM’) and after allowing working capital adjustment @ 2% worked out the Transfer Pricing Adjustment at Rs.7,37,55,835 in respect of the assessee's international transactions in the ITES Segment of the assessee's activities. The order of assessment was accordingly completed under Section 143(3) of the Act vide order dt.29.12.2006 wherein the assessee's income / loss was determined at (-) Rs.66,37,165 after incorporation of the Transfer Pricing Adjustment of Rs7,37,55,835. On appeal, the CIT (Appeals) – IV vide order dt.30.11.2011 disposed of the assessee's appeal, allowing the assessee partial relief.

“ 1. The order of the learned CIT (Appeals) in so far as it relates to the following grounds is opposed to law and facts of the case.

2. On the facts and in the circumstances of the case, the learned CIT (Appeals) erred in holding that the TPO should not include uncontrolled comparable having any unrelated party transactions even upto 25%.

3. The learned CIT (Appeals) erred in holding that the assessee is eligible for a standard deduction of 5% from the Arm’s Length Price under the proviso to Sec. 92C(2) of the IT Act, 1961.

4. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT (Appeals) in so far as it relates to the above grounds may be reversed and that of the Assessing Officer may be restored.

5. The appellant craves leave to add, alter, amend and / or delete any of the grounds mentioned above.”

4 IT(TP)A No.171/Bang/2012 Departmental Representative drew the attention of the Bench to para (v) on page 11 of the impugned order of the learned CIT (Appeals) to show that the learned CIT (Appeals) rendered such an uncalled for finding when deciding the exclusion of Wipro BPO Solutions Ltd. as a comparable company. It was emphatically urged that the aforesaid finding rendered by CIT (Appeals) in respect of RPT when dealing with the comparability of Wipro BPO Solutions Limited ought to be reversed.

6.2 The learned Authorised Representative for the assessee submitted that while it is true that no ground on RPT was raised before the learned CIT (Appeals), the reversal of his finding in this regard would have no bearing on deciding the exclusion of Wipro BPO Solutions Ltd. from the list of comparables since this company was excluded not only on grounds of RPT; but also on account of ownership of brand and intangibles and having very high turnover.

6.3 We have heard the rival contentions, perused and carefully considered the material on record. On a perusal of the grounds raised by the assessee before the learned CIT (Appeals) we find that no grounds were raised for exclusion of any of the companies from the list of comparables on grounds of RPT filter. In this view of the matter, the finding of the learned CIT (Appeals) for excluding Wipro BPO Solutions Limited from the list of comparables on grounds of application of RPT filter was not warranted as it did not emanate as a cause of grievance in the grounds raised by the assessee and we, therefore, accordingly cancel

5 IT(TP)A No.171/Bang/2012 the finding rendered by the learned CIT (Appeals) in this regard. Consequently, Ground No.2 raised by the Revenue is allowed to this extent. However, this would not in any way affect the finding of the learned CIT (Appeals) in excluding Wipro BPO Solutions Limited from the list of comparables on grounds of brand and intangible ownership and huge turnover.

7.1 In this ground, Revenue has assailed the order of the learned CIT (Appeals) in holding that the assessee is eligible to the benefit of standard deduction of 5% from the ALP under the proviso to Sec. 92C(2) of the Act.

7.2 We have heard the rival contentions, perused and carefully considered the material on record. By virtue of the retrospective amendment to the Act made by Finance Act, 2012 w.r.e.f. 1.4.2002 by introduction of a clarificatory amendment in which Sec.92C(2A) was inserted, it is mandated that if the arithmetic mean price falls beyond + / - 5% from the price charged in the international transactions, then the assessee does not have any option referred to in Sec. 92C(2) of the Act. Thus, as per the above amendment, it is clear that the + / - 5 % variation is allowed only to justify the price charged in international transactions and not for adjustment purposes. The aforesaid amendment by insertion

6 IT(TP)A No.171/Bang/2012 of Sec.92C(2A) of the Act has settled the issue and accordingly the assessee is not entitled to the benefit of 5%. In view of the above, we reverse the finding of the learned CIT (Appeals) and allow ground No.3 raised by the Revenue.

Order pronounced in the open court on the 19th day of Jan., 2017.