TaxTMI 
TaxTMI 
2019 (1) TMI 1352
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..../s. 143(2) of the Act was issued and served on 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....
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....n the creation of a print layout and the final printing. Hence, the Prepress 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 ....
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....m the comparable set. Reference is being made in para 3.2.4 at Page 29 to 30 of Appeal Memo for DRP directions. The revenue of Excel Infoways Limited 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 functiona....
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....o-ordinate Bench of the Tribunal in the case of Emerson Climate Technologies (India) Pvt. Ltd. Vs. DCIT (supra.) has decided whether Excel Infoways Limited can be comparable company or not by observing as under: "18. We have 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....
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....evenue in an environment where Indian economy is growing at consistent rate. Having held so, the Assessing Officer included Excel Infoways Ltd. as a comparable without considering the fact that the said company does not pass the diminishing ITA No.6158/Del/2016 revenue filter. From 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 fro....
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....or comparable companies thereby charging the operating profit margin of tested party from 15.16% to 13.91%. The DRP directed to consider foreign exchange gain/loss as non operating by relying on Rule 10TA of Safe Harbour Rules. 15. At the time of hearing, the Ld. AR submitted that the foreign exchange gain/loss is arising out of normal business operation of the assessee 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 groun....
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.... 22.1 Respectfully following the decisions of the different Benches of the Tribunal, we set aside the order of the CIT(A) on this issue and direct the Assessing Officer to consider foreign exchange fluctuation gain as part of the operating income of the assessee." Respectfully following the same, we direct the Assessing Officer to treat foreign exchange gain/loss as part of operating income of the assessee. Accordingly, ground No. 4 raised in appeal by assessee is allowed." 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 appearin....
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....nch of Tribunal in MSC Software Corporation India Pvt. Ltd. Vs. ACIT in ITA No.46/PUN/2013, relating to assessment year 2008-09, order dated 22.03.2017. 19. We find that the issue is squarely covered by earlier decisions of the Pune Bench of Tribunal in MSC Software Corporation India Pvt. Ltd. Vs. ACIT (supra), wherein the said concern was also captive service provider to its associated enterprises and had claimed to be risk free. It had asked for risk adjustment in the margins of finally selected comparables and the Tribunal vide order dated 22.03.2017 held as under:- "34. Following the said ratio, we direct the Assessing Officer to allow the risk adjustment and re-compute the margins of comparables by applying the ratio laid down by Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee. 35. The ground of appeal No.10 raised by the assessee is against applicability of +/- 5% and the benefit can be allowed if the adjustment is within such range and hence, no adjustment is to be made in case it is not more than 5% from the arm's length price. We hold so." 20. The iss....