TaxTMI 
TaxTMI 
2019 (1) TMI 1352
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....the assessee along with questionnaire for compliance. Simultaneously, the case was referred to the Transfer Pricing Officer for determining Arm Length Price (ALP) after obtaining the approval of the Commissioner of Income Tax-1, Pune. 4. During the course of assessment proceedings, it was explained by the Ld. AR of the assessee that the assessee-company is engaged in providing Information Technology enabled services (ITes), Web enabled services and Business Process Outsourcing services to its Group company in nature of call centre and back office support (BPO) services. It also provides in-house software support services and knowledge process outsourcing services to its Group Company. The assessee company is a captive unit remunerated at cost plus mark up to 15% by its Group Company. The assessee-company had maintained books of account for its business activities relevant to assessment year 2012-13 and the books of account were duly audited. The assessee furnished the copy of Audit report in Form No. 3CA/3CD as per provisions of section 44AB of the Act along with Profit & Loss Account, Balance Sheet and all annexure thereto. Further, the report relating to international transactio....
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....ss segment is by no way functionally comparable to the ITes-BPO business of the assessee. This contention is duly supported by the decision of Co-ordinate Bench of the Tribunal, Bangalore in the case of XL Health Corporation India Pvt. Ltd. Vs. ACIT, in ITA No.2311/Bang/2016 dated 09.02.2018 which also pertains to assessment year 2012-13. Further, contention with regard to the Universal Print Systems Limited by the Ld. AR was that the entity level employee cost to turnover ratio of universal is 18.56% vis-à-vis 56.59% in case of the assessee. The segment level employee cost relating to Prepress BPO segment is not available and hence, the assessee without prejudice to the above contention relying on the entity level statistics contented that since the ratio is lower than 25%, Universal Print Systems Limited cannot be considered as a comparable company. This contention is supported by the decision of Co-ordinate Bench of Tribunal, Pune in the case of Emerson Climate Technologies (India) Pvt. Ltd. Vs. DCIT, in ITA No.359 and 2847/PN/2016 dated 25th April,2018 which pertains to the assessment year 2012-13 and is placed in para 19 at page 405 of paper book. 7. With regard to Exc....
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....ited demonstrated diminishing revenue trend as under: Assessment Year 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 Revenue (in Crores) 20.42 crore 20.35 crore 7.91 crore 7.61 crore 5.28 crore 2.30 crore This contention is duly supported by the decision of Co-ordinate Bench of Tribunal, Delhi in the case of Baxter India Pvt. Ltd. Vs. ACIT, in ITA No.6158/Delhi/2016 dated 6th August 2017. Reference is being made in Para 24 of the order at Page 435 to 436 of the paper book. 10. We have perused the case record and heard the rival contentions and analyzed the facts and circumstances in this case. That Universal Print Systems Limited being non-comparable company as pointed out by the assessee, the issue came up before the Co-ordinate Bench of the Tribunal, Bangalore in the case of XL Health Corporation India Pvt. Ltd. Vs. ACIT (supra.). The question came up before the Tribunal was that Universal Print Systems Limited was objected by the assessee company before the TPO on the grounds of functional difference as it is engaged in the business activities such as printing and allied activities, high profit making company and also fails the employees cost filter. The Tribuna....
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....e heard rival contentions and perused the record. The limited issue which arises is against benchmarking of ALP of the international transactions on account of provisions of Oracle Support Services (ITenables services) by assessee to its associated enterprise and for benchmarking of ALP of the international transactions to the said concern i.e. Excel Infoways Ltd. which has been finally selected by the DRP, is to be excluded since it is showing fluctuating margins. It is further observed that the operating margin of the company had shown drastic fluctuations ranging from 247.74% in F.Y. 2008-09 to 2% in FY 2014-15. The assessee has pointed out the margins shown by the said concern were as under: Financial Year OP/TC margin 2008-09 247.74% 2009-10 267.31% 2010-11 238.71% 2011-12 41.48% 2012-13 75.70% 2013-14 30% 2014-14 2% 19. We find that the Tribunal in assessee's own case in assessment years 2011-12 & 2012-13 vide Para 16 & 17 of the order of Tribunal has excluded Excel Infoways Ltd. because of its fluctuating margins shown by the said concern. The Tribunal held that the said concern i.e. Excel Infoways Limited which is in the process of closing down its ITES se....
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.... the submissions of the assessee before the TPO (at page 232 of Volume - I of the Paper Book) we find the details of the operating margin of the company from financial years 2009-10 to 201-15 are as under :- Particulars Financial Year 2009-10 (INR' 000) 2010-11 (INR'000) 2011-12 (INR'000) 2012-13 (INR'000) 2013-14 (INR'000) 2014-15 (INR'000) Revenue 204,161.34 203,526.39 76,096.95 76,098.54 53,792.12 22,994.38 Operating cost 43,986.99 50,751.24 55,991.57 47,539.99 41,355.78 22,895.57 Operating Profit 160,174.35 152,775.14 23,105.38 28,558.55 11,436.34 98.81 OP/OC (%) 364.14% 301.30% 41.27% 60.07% 22.65% 0.43% 25. From the above, it is clear that above company does not pass the diminishing revenue filter as adopted by the TPO himself since its revenue has decreased consistently from financial years 2009-10 to 2011-12 i.e. including the year under consideration. Further, the above company has super normal profits. We further find the submissions of the assessee that Excel Infoways Ltd. has super normal profits during the current year has not been controverted by the Revenue. We find the Mumbai Bench of the Tribunal the case of DCIT vs. Wi....
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....and hence, it needs to be considered for computation of operating margins of the assessee. Safe Harbour Rules, relied upon by the DRP were introduced on 18th September, 2013 and are prospective in nature ( i.e. applicable from assessment year 2014-15) and does not apply to the assessment year under consideration i.e. 2012-13. The Ld. AR has placed reliance on the decision of the Co-ordinate Bench of Tribunal, Pune in the case of Imerys Newquest (India) Pvt. Ltd. Vs. DCIT, in ITA No. 590/PUN/2015 dated 23rd May, 2018. 16. We have perused the case record and considered the judicial pronouncement placed before us. The similar issue had come up for consideration before the Pune Bench of the Tribunal in ITA No. 590/PUN/2015 (supra.). The relevant part of the order of the Tribunal is as under: "14. In ground No. 4 of the appeal, assessee has assailed assessment order in treating foreign exchange gain/loss as non-operating in nature. The DRP has formed such opinion on the basis of Section 10TA of Safe Harbour Rules. As has been pointed earlier, 'Safe Harbour Rules' came into existence from September, 2013. They do not apply retrospectively and hence, have no application in the assessme....
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....Respectfully following the same, we direct the TPO/ Assessing Officer to treat the foreign exchange gain/loss as part of operating income of the assessee. Thus, ground No.6 raised in appeal by assessee is allowed. 17. Ground No.8 refers to the Ld. TPO/DRP erred by comparing fullfledged risk bearing entities with the assessee's captive operations without making any risk adjustment on account of differences between the functional and risk profile of comparable companies vis-à-vis the risk profile of the assessee. In Para 10.2 of DRP directions, the DRP denied risk adjustment stating that the assessee is not a risk free entity and the DRP has relied on the various judgments as appearing in its order. 18. The arguments of the Ld. AR of the assessee before us was that the assessee functions under limited risk environment vis-à-vis entrepreneurial risk borne by comparable companies who are independent service providers. Accordingly, financial data needs to be adjusted to account for functional and risk level differences in order to improve the reliability of analysis. The fact that the assessee is risk mitigated entity is duly noticed and appreciated by the learned TPO i....