TaxTMI 
TaxTMI 
2019 (1) TMI 1548
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.... Transfer Pricing General 2. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred in confirming the transfer pricing adjustment of Rs. 1,97,72,254 on account of provision of Information Technology enabled Services (ITeS) by the Appellant to its associated enterprises (AE's). 3. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred in rejecting transfer pricing documentation maintained by the Appellant in accordance with the provisions of the Act read with the Income Tax Rules 1952 ('Rules') and undertaking a fresh economic analysis during the course 0" assessment proceedings and thereby making an adjustment to the international transactions. Selection of un-comparable companies 45. That on the facts and the circumstances of the case and in law, the TPO/AO/DRP erred in considering the following companies as comparable a) Capgemini Business services (India) Limited and b) Hartron Communications Limited. 5. That on the facts and circumstances of the case and in law, the TPO/AO/DRP erred in accepting Hartron Communication....
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....r FY 2012-13 only. Working capital adjustment 13. That on the facts and circumstances of the case or in law, AO/DRP has erred in making negative working capital adjustment in the Appellant's case who is mainly a captive service provider, without taking into account the jurisdictional judicial precedents on the issue. 14. Without prejudice to above, the AO/TPO/DRP has erred in considering the incorrect numbers while calculating average receivables/payables of the comparable selected in the TP order while computing the working capital adjustment. Adjustment for risk differences 15. That on the facts and circumstances of the case and in law, the AO/DRP erred in disregarding the risk profile of the Appellant vis-a-vis alleged comparable companies selected by the TPO and not allowing risk adjustment as per the provisions of Rule 10B(1)(e) of the Rules. Arm's length range of 3% 16. That the AO/TPO be directed to re-work the profit margins of the Appellant vis-a-vis the resultant comparable companies and to allow the benefit of +/ -3% range as provided in proviso to Section 92C....
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..... USA Provision of IT enabled services 160901715 Reimbursement of expenses 581282 Receivables 29298909 Payables 651027 Harsco Metal Group Ltd, UK Provision of IT enabled services 126795426 Receivables 23361391 Harsco Infrastructure Services Ltd, UK Provision of IT enabled services 56315780 Receivables 9291542 Harsco Metals Lexequip, Luxumburg Provision of IT enabled services 4604995 Receivables 802838 Harsco Metal LTDA, Brazil Provision of IT enabled services 2320434 Receivables 170974 Harsco Metals South Africa PTY Ltd Provision of IT enabled services 2197198 Receivables 747974 Harso Infrastructure Services GmbH, Germany Payables 473775 AL Quebeieisi LLC, SA Payables 106476 6. The TPO also observed that the assessee has carried out the economic analysis and has adopted TNMM as the most appropriate method and arrived at a margin of comparables at 12.21%. Since its margin of 15% was more than the average margin of the comparables, the assessee had treated its transactions at ALP. The TPO however, observed that the search process of the assessee suffered from defects which resulted in selection of inappropriate comparables and rejection ....
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....e submitted that this company is functionally dissimilar as it is involved in BPO services, Cloud Business Information Management Services and other I.T related services as against the support services provided by the assessee which have been categorized as ITeS. On perusal of the Annual Reports of the said company at pages 863 and 865 of the Paper Book filed by the assessee, we find that the Company Capgemini Business Services (India) Ltd is not only to ITeS in Financing & Accounting but has also widened the scope of services in Supply Chain, Procurement, Technical Publication Services and has shown the intention to diversify the portfolios. We find that it is also providing services in relation to the operational control system and for compliance with the provisions of the Sarbanes Oxley Act, 2002 and that it also stated that the company has strategically expanded its new services by including Non Sox related activities like I.T Risk Assessment, SAS 70, Assurance and Risk Management to many companies. Further, we find that the assessee has reported income only from the sale of services. Thus, we are inclined to agree with the learned Counsel for the assessee that the activities o....
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....f the assessee's contentions and if it is found to be in diversified activities and no segmental information is available, then we direct that this company cannot be taken as a comparable. Thus, grounds of appeal Nos. 3 to 5 are partly allowed for statistical purposes". 11. Respectfully following the same, we direct the AO to exclude these two companies from the final list of comparables. 12. As regards Grounds 8 to 10 seeking inclusion of certain companies is concerned, we find that in the case of Hyundai Motor India Engineering (P) Ltd, we have considered similar contentions of the assessee therein and at Paras 12 to 14 and 16 to 20, the Tribunal has held as under: "12. As regards Grounds 8 to 11 are concerned, it is for inclusion of certain companies as comparables. The learned Counsel for the assessee submitted that Ace BPO Services Ltd was taken by the assessee as a comparable, but the TPO has held it to be functionally not comparable and the DRP has also confirmed the rejection on the ground that no information about the RPT filter is available in the Annual Report. It is submitted that the said company is also engaged in ITeS services as per its Annual Report ....
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....irmed the same. The assessee has submitted that this company was taken as a comparable and accepted by the TPO in the assessee's own case for the A.Ys 2012- 13 and 2011-12. Upon considering the rival contentions, we deem it fit and proper to remit the issue of comparability of this company to the file of the TPO and if it is found that the said company was accepted to be a comparable company in the earlier A.Ys, then the AO/TPO shall consider the same as comparable for the relevant A.Y, unless there is a difference in the services rendered by both the companies in the relevant A.Ys before us. 19. As regards Crystal Voxx Ltd is concerned, the TPO has rejected this company on the ground that it did appear in the search analysis of the TPO and the DRP has confirmed the same. The learned Counsel for the assessee has drawn our attention to the Annual Report of the company to submit that this company is also a BPO Company and there is only a single segment and hence should be considered as a comparable. 20. As seen from the Paper Book filed by the assessee, the Annual Report of the company is available in the public domain and the assessee had submitted the same during the assess....
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....efore on facts we do not see any justification for excluding provisions written back in the profit and loss account as not forming part of the operating profit of the taxpayer. Accordingly claim of the taxpayer is accepted. 107. The next item relates to balances written back. In our considered opinion, finding given in respect of provisions written back is equally applicable to balances written back more particularly when ld. CIT(A) has not given any separate finding and the Transfer Pricing Officer has said nothing specifically on this item. The balances written back should also be treated as part of operating profit. We direct accordingly." 42. We are of the view that in the instant case bad debts and provision for bad and doubtful debts are part of the operating expenses and we direct the TPO to re-compute the margins of comparable companies by including bad debts and provision for bad and doubtful debts as operating expenses for the purpose of computing profit and loss of comparable companies". 15. We find that the DRP has also followed certain decisions of the Tribunal to hold that the provision for bad and doubtful debts do not form part of operating expenses. We a....
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.... considered as comparables. The assessee does not agree with the learned TPO as : * The company does not bear any working capital risk since it is been fully funded by it's A.E. from its inception and has no working capital contingencies. * The company has never taken any loans till date from the date of incorporation nor has incurred any expense for meeting the working capital requirement." We have gone through the submissions and the order of the TPO. The assessee pleaded that the DRP has acceded such a plea in some other case. On examination, we find that the DRP, Hyderabad in the case of Cordys Software India P. ltd., for A.Y. 2008-09 in its directions dated 03.08.2012 has given a finding as under : "7.7. 4 Thus, working capital adjustment is made for the time value of money lost when credit time is provided to the customers. The applicant is not an entrepreneur but a captive service provider. Its entire funding needs are provided by the A.E. This being so, the applicant does not stand to lose anything as it is compensated on a total cost plus basis. The TPO probably was carried away by the large amount of receivables appearing in the books of the applicant. But the....