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2017 (11) TMI 959
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....ogy enabled back-office services such as industry, company and financial analysis which comprise business information, data gathering, analysis and delivery etc. to Bain USA's global operations through customized remote research and information support services. ii) Software development services - Under this segment the assessee provides contract research development services to BAIN USA for internal uses. 2.1 The return of income was filed declaring income of Rs. 7,75,29,795/- which was initially processed u/s 143(1) of the Act and was later selected for scrutiny. A reference u/s 92CA(1) of the Act was made to the Transfer Pricing Officer (TPO) for determining the Arm's Length price (ALP) u/s 92CA(3) of the Act in respect of international transactions entered into by the assessee during the year under consideration. The TPO determined the adjustment/difference on account of ALP in respect of international transaction with Associated Enterprises (AE) in respect of 'intra group services' and 'payment of royalty' under 'Provisions of IT enabled services at Rs. 2,49,28,004/- and 'Receivables' at Rs. 91,09,407/- respectively. As far as the software development segment of th....
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....e Assessee at the time of preparing its TP documentation; 2.2 rejecting comparability analysis in the TP documentation and in conducting a fresh comparability analysis based on application of the additional/ revised filters in determining the Arm's Length Price and while doing so, erred in: 2.2.1 rejecting companies whose accounting year does not end with March 31, 2012 on the basis that the transactions taking place in a different period cannot be compared; 2.2.2 rejecting companies having sales turnover from ITeS segment is less than 5 crore; 2.2.3 rejecting companies having export sales less than equal to 75% of the sales from ITES thereby modifying the Assessee's filter of rejecting companies whose export sales is less than equal to 25%; 2.2.4 erroneously including functionally different and high profit making entrepreneurial companies in the final comparables' set for benchmarking the IT enabled services segment (a low risk captive unit) of the Assessee (disregarding judicial pronouncements on the issue) and thereby resorting to cherry picking of comparables with a prejudicial mind set for making an upward adjustment; 2.3 e....
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....f minimum alternate Tax (MAT) eligible for set off while computing the demand of income via notice under section 156 of the Act for AY 2012-13 8. The Ld. AO erred in proposing to charge interest under section 234B & 234C of the Act. The above grounds are without prejudice to each other. The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of appeal either before or during the course of the proceedings before the Hon'ble Income Tax Appellate Tribunal in the interest of the natural justice. The aforesaid grounds are mutually exclusive and without prejudice to each other." 3.0 The Ld. AR submitted that although the assessee is aggrieved with the inclusion/exclusion of several comparables, he will be arguing for the exclusion of Eclerx Services Limited and TCS E-Serve Ltd. and for inclusion of R Systems International Ltd. The arguments of the ld. AR in respect of the three comparables are as under:- 1. TCS E-Serve Ltd. : The Ld. AR submitted that this company was not comparable to the assessee due to incomparable scale of operations and presence of huge intangibles with TCS E-Serve and the b....
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.... Eclerx Services Limited was a high-end KPO engaged in providing data analytics, data solutions, services etc. whereas the assessee is engaged in rendering IT enabled back-office support services in the nature of extraction of company snapshots/details, industry data and other market information from public databases and shares the same with its group companies for research. It was further submitted that that if Eclerx Services Limited was excluded from the list of comparables the assessee would be at arm's length having an upper margin of 24.85% and as a consequence the issue relating to inclusion/exclusion of R Systems International Ltd. and TCS E-Serve Ltd. will become academic. It was further submitted that if both Eclerx Services Limited and TCS E-Serve Ltd. are excluded, the assessee would be at arm's length as the margin of the assessee will be 18.9% while the margins of the comparables would be 16.18% and as a consequence, the issue relating to inclusion/exclusion of R Systems International Ltd. would become academic. 3. R Systems International Ltd.: The Ld. AR submitted that R Systems International Ltd. has been excluded by the TPO as well as the Hon'ble DRP only for....
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....eld that when the assessee has already factored in the impact of the receivables on the working capital and thereby on its pricing and profitability vis-à-vis that of the comparables, any further adjustment only on the basis of outstanding receivables would distort the picture and re-characterize the transactions. It was also submitted that the assessee is a debt free company where it has neither received any interest from its creditors nor paid any interest to any debtors, and, therefore, it could not inferred that the assessee had given any benefit to the AE by blocking its interest bearing funds by extending credit period to the AE. Reliance was also placed on another order of the ITAT Delhi Bench in the case of B.C. Management Services Pvt. Ltd. vs DCIT (supra) wherein ITAT Delhi Bench had deleted transfer pricing adjustment made by the TPO by imputing interest on delay in receipt of payment. 4.0 In response, on the issue of exclusion of Eclerx Services Limited, Ld. CIT DR submitted that the outsourcing did not invalidate the functional profile and, therefore, the same should not be excluded. On exclusion of TCS, it was submitted that both the assessee company as well....
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.... be excluded solely on the ground that the comparables have different financial year endings. Therefore, we deem it appropriate to restore this comparable to the file of the TPO/Assessing Officer for verifying the computation, as recast by the assessee, and include this comparable in the final set of comparables. 5.1 As the Ld. AR has submitted that if R Systems was directed to be included in the final set of comparables, the assessee's challenge against the inclusion of E Clerx Services Ltd and TCS E-serve Ltd would become academic in nature. Accordingly, as we have directed that R Systems be included in the final set of comparables, we dismiss as the assessee's contentions challenging their inclusion as having become academic. We, however, note that the right of the assessee to challenge these comparables in succeeding assessment years, if it is so required, remains protected. 5.2 The second issue relates to treating the delay in receipt of payments from the AE to be in the nature of unsecured loan advanced to the AE and thereby charging interest. Before us, the main contention of the assessee is that since no interest has been charged on the delayed payment made by the thi....
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....d." 5.3 Similarly, the ITAT Delhi Bench in another case of Kusum Healthcare Private Limited versus ACIT, in ITA No. 6814/DEL/2014, has held as under - "7.... An uncontrolled entity will expect to earn a market rate of return on its working capital investment independent of the functions it confirms or products it provides. However, the amount of capital required to support these functions varies greatly, because the level of inventories, debtors and creditors varies. High levels of working capital costs either in the form of incurred interest or in the form of opportunity costs. Working capital yields a return resulting from (a) higher sales price or (b) lower cost of goods sold which would have a positive impact on the operational result. Higher sales prices acts as a return for the longer credit period granted to customers. Similarly in return for longer credit period granted, a firm should be willing to pay higher purchase price which adds to the cost of goods sold. Therefore, high levels accounts receivable and inventory tend to overstate the operating results while high levels of accounts payable tend to underestimate them thereby necessitating appropriate adjustme....