TaxTMI 
TaxTMI 
2018 (5) TMI 232
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....priate comparables from the list of rejected companies as given by the Appellant Co. in its transfer pricing study; (v) not considering that for the purpose of determining arm's length price for international transactions, Cos. as selected by TPO performing high-end functions were not comparable with the Appellant Co. providing low-end transcription and data processing services; (vi) not considering the facts/submissions/objections made before them that except for Cosmic Global Ltd., rest of the comparables selected by TPO ought to have been rejected on various grounds including functional dissimilarity, significantly high/large turnover, significantly high supernormal profits, non availability of segmental information etc; (vii) not making proper adjustment for transactional level differences between the Appellant and the comparable companies; (viii) inappropriately computing the operating margins of comparables of the Appellant and denying the mistakes/errors apparent from the record as duly pointed out while working out the operating margins of comparables; (ix) not giving effect to the working capital adjustments to the operating margin of the Appellant Co. a....
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....that this was the first year in which reference was made to Ld.TPO and there has been no order of either TPO or DRP in any of the earlier assessment years. 2.4. The only issue that is disputed before us raised by assessee is in respect of selection of comparables by Ld. TPO as well as exclusion of certain comparables that have been proposed by assessee. 2.5. Before discussing comparables objected for its inclusion by assessee as well as those comparables which have been submitted by assessee to be included, it is sine qua non to deal with FAR analysis of assessee before us. 3. FAR Analysis of Assessee The Transfer Pricing report of assessee for the year under consideration has been placed at page 24-49 of paper book volume I. It is observed that at page 51- 72 are copies of agreement entered into by assessee for its Delhi unit and Vadodara unit with its associated enterprise. The services rendered by assessee under both these agreements to the associated enterprise are as under: (i ) Details of services to be provided by KSPIPL to KSPL KSPL will provide technical expertise, assistance, advice and where necessary software to KSPIPL to carry on its operations in India in su....
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....structions, authorizations, approvals or other information provided to it by or on behalf of KSPL. * The staff as engaged by KSPIPL is trained with the help and guidance of KSPL. Such staff members are primarily typists/data entry operators, who are assigned the task of converting digital voice files as received into written documents during the course of providing transcription and data entry services, which requires basic skills and it is therefore a low margin business. It may be clarified here that translation work is not carried out by KSPIPL, which requires higher skill levels and may command higher margins. (iii) Assets: It is observed that assets owned by assessee are only such assets to enable it to render services to its AE like computer equipments, furniture, fixtures and fittings and office equipments. All intellectual property created by assessee or its employees in the process of rendering services to associated enterprise, continues to be owned by AE and not by assessee. (iv) Risks: It has been submitted by assesse in the FAR analysis that assessee provides services only and does not enter into direct contracts with any 3rd parties. It is therefore not ex....
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.... No. Name of the comparable Remarks 1. Cigniti Technologies Ltd. This company is into software development, and fails export sales filter. Hence rejected. 2. Cosmic Global Limited This is a suitable comparable. 3. Infotech BPO Private Ltd. This company fails export filter (0.0%). Hence not a suitable comparable. Ld.TPO thereafter conducted search on arrived at comparables having average margin of 24.63% as under: Sl. No. Company Name OP/OC 1. E4e Healthcare Pvt.Ltd. 31.03% 2. Jindall Intellicom 13.62% 3. ICRA TechnoAnalytics Ltd. (Seg.) 28.77% 4. Cosmic Global Ltd. 18.28% 5. Infosys BPO 31.46% AVERAGE 24.63% 7. During Transfer Pricing proceedings, assessee objected for inclusion of Cosmic Global Ltd. as comparable since it was not strictly comparable due to high-risk of services and was receiving revenue for translation charges which was different from a low-end transcription services provided by assessee. 8. Ld.TPO considered foreign exchange gain as non-operating for the reason that it did not have any bearing on the transaction. Ld.TPO thus proposed adjustment of Rs. 76,72,093/-. 8.1. Ld.TPO rejected the claim of loss arising ....
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....medical prescriptions dictated on telephonic conversation by doctors located outside India and therefore is rendering a low-end service whereas the comparable under consideration renders health services like providing ambulance and doctors services on call etc., He submitted that this company cannot be considered as a fit comparable for purposes of determining arm's length price for assessee's transaction with its AE. On the contrary Ld. CIT DR submitted that transcription activity cannot be simply equated to a back-office service, as it requires streaming to be provided to its employees for rendering specialised services. We have perused the submissions advanced by both the sides in the light of records placed before us. It is observed that this comparable provides services in the field of healthcare and assessee before us is rendering services relating to transcription of medical prescription. We do not find any similarity in the service functionality of both these companies and therefore we hold that they are functionally dissimilar. As the functionality test is not satisfied between these companies, we direct Ld. TPO to exclude this comparable from the list. (b) Jindal Inte....
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....d. CIT DR is of the opinion that revenues earned by assessee from medical transcription and consultancy services segment are comparable with that of the services rendered by assessee to its AE. We have perused the submissions advanced by both the sides in the light of the records placed before us. From the financials of this company it is observed that it has separate segmental information in respect of income earned under 2 different heads. For that reason we agree with the arguments advanced by Ld. CIT DR in respect of the comparison that could be drawn between assessee and revenue generated by this company under the head medical transcription and consultancy services. Since services rendered by assessee as well as this comparable under segment medical transcription and consultancy services are similar, we do not find any infirmity in including this company in the list of comparable. However ld.TPO is directed to consider revenue earned by this company under the segment medical transcription and consultancy services only for purposes of determining the arm's length price. (e) Infosys BPO Ltd Ld.Counsel submitted that this company is not comparable due to high turnover which i....
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....oceeds in rupee account of the assessee was treated as part of business income. It was thus submitted by Ld.Counsel that the loss amounting to Rs. 4,44,536/- was not a business loss and hence ought to be adjusted against interest income of Rs. 1,43,641/-as declared under the head 'income from other sources'. Ld.Counsel placed reliance upon following decisions for considering foreign exchange gain as a part of operating income while computing operating margin. * Decision of Hon'ble Supreme Court in the case of CIT vs. Woodward Governor India Pvt.Ltd reported in (2009) 312 ITR 254; * Decision of Hon'ble Delhi High Court in the case of Principal CIT vs. Agilis Information Technologies International Pvt.Ltd in ITA No.907/2015 vide order dated 08.02.2016. 12.1. On the contrary Ld. CIT DR submitted that both foreign exchange loss and gain earned by assessee is on account of realisation of export proceeds in rupee account. He submitted that different treatment cannot be allowed to gain and loss earned by assessee from its business income. He submitted that foreign exchange gain and loss has been derived from trading activity. He submitted that therefore loss cannot be treated as inco....