Tribunal sets aside order, remits for ALP redetermination

The Tribunal allowed the appeal, setting aside the impugned order and remitting the matter to the AO/TPO for re-determining the Arm's Length Price (ALP) of the international transaction. The appeal was time-barred due to the Covid pandemic, but the delay was condoned. The Transfer Pricing adjustment of Rs. 29,47,928 was upheld, and certain comparables were excluded from the list. The treatment of Foreign Exchange Fluctuation (forex) loss as non-operating was challenged and overturned. The Tribunal directed a re-determination of the ALP considering these factors.

---

---

Issues:
1. Time-barred appeal due to the Covid pandemic situation.
2. Transfer pricing adjustment of Rs. 29,47,928.
3. Inclusion/exclusion of certain comparables in the list.
4. Treatment of Foreign Exchange Fluctuation (forex) loss as non-operating.

Time-barred appeal due to the Covid pandemic situation:
The appeal by the assessee was time-barred by 85 days, citing the Covid pandemic as the reason for the delay. The Tribunal condoned the delay, referring to the Supreme Court's suo motu cognizance of the challenges faced by litigants due to the pandemic and extended the time limit for filing appeals. The appeal was admitted for disposal on merits.

Transfer pricing adjustment of Rs. 29,47,928:
The only issue raised in the appeal was against the transfer pricing adjustment made by the Assessing Officer (AO). The assessee, engaged in providing IT-enabled services, reported an international transaction worth Rs. 16,85,41,378. The Transfer Pricing Officer (TPO) determined the Arm's Length Price (ALP) using the Transactional Net Margin Method (TNMM) and proposed a transfer pricing adjustment of Rs. 29,47,928. The Dispute Resolution Panel upheld the adjustment, leading to the impugned order.

Inclusion/exclusion of certain comparables in the list:
The Tribunal examined the comparability of the challenged companies. Regarding Insync Analytics India Pvt. Ltd., the Tribunal excluded it from the list of comparables due to breaching the Related Party Transactions (RPT) filter set by the TPO. CES Limited was also removed from the list as it provided both Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO) services, unlike the assessee engaged only in BPO services. Domex e-data Pvt. Ltd. was excluded as it was engaged in software development in addition to IT-enabled services, unlike the assessee. The Tribunal directed the AO/TPO to re-determine the ALP considering these exclusions.

Treatment of Foreign Exchange Fluctuation (forex) loss as non-operating:
The assessee challenged the treatment of forex loss as non-operating, which was upheld by the TPO and DRP. The Tribunal held that forex gain should be considered as operating revenue based on precedents, including decisions by various courts. Consequently, the ground was allowed, and the impugned order was set aside, remitting the matter for re-determination of the ALP.

In conclusion, the Tribunal allowed the appeal for statistical purposes, setting aside the impugned order and remitting the matter to the AO/TPO for re-determining the ALP of the international transaction in light of the adjudication on the inclusion/exclusion of certain companies and the treatment of forex gain as operating revenue.

---