TaxTMI 
TaxTMI 
2019 (10) TMI 900
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....g BPO services i.e. remote processing applications including medical and health care centres, customer interaction services, business processing of medical claims for hospitals and medical centres, technical support and desk support, claim processing, remote data entry, etc. The assessee extends BPO and other services to parent company Tela Sourcing Inc, Baltimore, Maryland USA. The assessee filed the return of income declaring at Nil income. The transfer pricing issue is involved in this case and therefore, the matter was referred to the TPO. The TPO passed an order u/s 92CA(3) of the Act on 28.01.2015 suggesting the TP adjustments amounting to Rs. 6,02,78,090/- on the international transactions with parent company amounting to Rs. 25,98,46,050/-. 4. During the TP proceedings before the TPO, there are a couple of issues which were subject matter of TP analysis. A. First one relates to the amendment to the assessee PLI (OP/OC) qua the claim of rebate, being a prior period expenditure, of Rs. 5,32,10,455/-. While the assessee did not reduce the same from 'operating income', the TPO treated the rebate, otherwise. However, the DRP granted relief to the assessee on thi....
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....lanation and finally included the same. 6. Aggrieved with the same, assessee approached the DRP. However, the DRP considered the explanation of the assessee and directed for exclusion of the same as per the discussion given in paras 6.27 to 6.30 of his order. As per the DRP, Eclerx, being a KPO company, is not comparable to the ITES or BPO company like the present assessee. The relevant paragraphs from the said order of the DRP are extracted hereunder :- "E-clerx Services Ltd: 6.27 We have considered the submissions of the assessee and the order of the TPO. The assessee contended that this company is functionally different from its ITES activities as it is engaged in high end KPO services. In this regard, it would be useful to refer to the relevant part of the annual report explaining the functions being performed by the company: "Our Key Differentiators As a leading offshore provider of end-to-end services to the Sales & Marketing universe, eClerx has deep domain knowledge and process expertise that enable it to serve and adapt to the fast growing and evolving digital marketplace. We deploy skilled resources together with process redesign and....
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....nt in this circle, and the undersigned has completed 128 time barring assessments in the Month of March, 2016. There was other time barring matters such as penalty orders, reopening of cases, judicial matters and audit related matters. The scrutiny report in the case was called for from the Transfer Pricing Officer on 01/01/2016. Moreover, the report of the TPO recommending filing of further appeal was received by e-mail on 07/04/2016. No hard copy has been received till date. The delay has been caused inadvertently and due to the above reasons. It is most humbly and with sincere apologies requested that the delay in filing appeal may kindly be condoned." 11. Considering the above reasons given by the Revenue in the affidavit, we find it is a fit case for condoning the delay of 14 days. After condoning the delay, we proceed to adjudicate the appeal of the assessee in the following paragraphs. 12. We shall now take up the issue-wise adjudication in the following paragraphs. 1. Inclusion/Exclusion of E-clerx Services Ltd. - Ground No.1 13. Before us, at the outset, ld. Counsel for the assessee suitted that this is a covered issue and the said comparable is ....
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....ed in providing low-end services to the group concerns." (iii) Although both are providing ITES series, by virtue of that alone, both units will not become comparable as observed by this Court in Aptara Technology (P.) Ltd.s case (supra) rendered on 26th March, 2018, - as follows:- 'merely because the tested party and the comparable provide ITES, they do not become comparable. The content of the services rendered by virtue of IT is to be examined before holding it to be comparable.' (iv) Further, our attention is invited to the decision of the Delhi High Court in Rampgreen Solutions (P.) Ltd. v. CIT [2015] 60 377 ITR 533 wherein Delhi High Court held that KPO services could not be compared to call centre services, although both would fall under the umbrella of ITES. Therefore, the functions of two cannot be considered to be similar for the purpose of being comparable. (v) In the above view, this question also does not give rise to any substantial question of law. It is essentially a finding of fact which is not shown to be perverse. Thus, not entertained." 14. Further, Id. Counsel for the assessee brought our attention to the decision of the Co....
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....39;s order are extracted hereunder :- "(vi) Genesys International Corporation Ltd.: The assessee stated that this comparable was rejected by itself, as it is functionally different. It also argued that there is abnormal trend in the unadjusted profitability of this company. The objection of the assessee has been perused. The company is not persistent loss making. Hence it satisfies all the accepted filters. Further, rule 10TA(g) of the Income Tax Rules, gives the definition KPO. In this definition, Geographical Information System and Design Engineering service has been considered as KPO only. Hence, the objection of the assessee is not accepted." 10. From the above, it is evident that the data analysis function of (i) E-clerx Services Ltd. are loss making company and (ii) Genesys International Corporation Ltd. are not comparable that of the assessee. It is also a fact that the TPO never granted any adjustments to the functional differences. 11. Further, bringing our attention to the order of the DRP, ld. Counsel submitted that the reasoning given by the TPO was approved without application of mind to the actual functions of the comparabl....
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....ss environment would be entirely different, the demand and supply for the services would be different, the assets and capital employed would differ, the competence required to operate the two services would be different. Each of the aforesaid factors would have a material bearing on the profitability of the two entities. Treating the said entities to be comparables only for the reason that they use Information Technology for the delivery of their services, would, in our opinion, be erroneous...." 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to." 12. Expla....
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....spatial services content provider specialising in land based technologies. Further, the business of this company requires skilled manpower and scientists and Civil Engineers etc. It also carried out R&D services and own intangibles. Following the decision of the Bangalore Bench of the Tribunal in the case of Sumphony Marketing Sales India Pvt. Ltd. reported in order, dated 14-08-2012, the Tribunal has held that this company cannot be regarded as comparable and deserves to be excluded from the list of comparables. ...................... 31. We have considered the rival arguments made by both the sides, perused the orders of the TPO/AO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. As regards the selection of Genesys International Corporation Ltd. as comparable company is concerned we find the said company has not been considered as comparable by the TPO himself in A.Ys. 2010-11 and 2011-12. During A.Y. 2010-11 a specific show-cause notice was given to the assessee and the same was excluded after considering the detailed reply filed thereto. In A.Y. 2011-12, the said company was not included as ....
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....rvices Limited is engaged in "data analytic" and (ii) Genesys International Corporation Limited is engaged in "geographical information system services". These functions are entirely different from that of the business of designing and development of chip, integrated circuits and storage components etc. 17. Therefore, we find these two comparables i.e. (i) E-clerx Services Limited and (ii) Genesys International Corporation Limited are required to be excluded for the purpose of benchmarking of the international transactions. Accordingly, ground No.4 raised by the assessee stands allowed." 15. The ld. DR, on the other hand, relied heavily on the order of the TPO. 16. Thus, it is a settled issue that the 'E-clerx' constitutes a KPO company and the same is not comparable to that of a BPO company like the present assessee. Considering the settled nature of the issue at the level of the Jurisdictional High Court on this issue, we find the order of the DRP and the Assessing Officer is fair and reasonable and it does not call for any interference. Accordingly, ground No.1 raised by the Revenue is dismissed. 2. - Computation of operating profit margin without....
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.... v. EDAG Engineers & Design India Pvt. Ltd . (ITA No.3618/Del/2009). Eventually, the DRP discussed this issue in its operational paras 3.9 and 3.10 and ultimately the DRP allowed the ground in favour of the assessee. 21. Resultantly, DRP directed the Assessing Officer/TPO to re-compute the operating profit margin of the assessee without considering the one-time price rebate of Rs. 5,32,10,455/-. Relevant para 3.10 of the order of the DRP is already extracted in the preceding paragraphs of this order. Eventually, the Assessing Officer passed the final order allowing the claim of the assessee on this rebate issue. Resultantly, the operating income before adjusting the said rebate as claimed by the assessee, is considered for PLI calculations of the assessee. 22. Aggrieved with the above views of the DRP, the Revenue is in appeal before the Tribunal with the above extracted ground No.2. 23. Before us, at the outset, ld. Counsel for the assessee submitted that the issue raised in the present ground No.2 relates to whether the prior period expense (rebate) is to be reduced from the operating profits of the year under consideration for computing the PLI for the current year. It ....
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.... the Tribunal in ACIT v. Dana India Technical Centre Pvt. Ltd. (supra) and it was held as under:- "12...... The learned Authorized Representative for the assessee fairly conceded before us that out of total losses of approximately Rs. 62 lakhs, losses to the tune of about Rs. 35 lakhs relate to earlier year and the balance losses relate to this year. The Mumbai Special Bench of Tribunal in the case of Prakash L. Shah 115 ITD 167 (SB) had held that gain due to exchange rate difference in the year of receipt on account of earlier exports and allowance of deduction under section 80HHC of the Act in such later year was not sustainable. Following the simile, we hold that while computing PLI for the year under consideration, the loss arising on account of foreign exchange fluctuation to the tune of Rs. 35,31,729/- is to be excluded. However, the loss arising on account of export proceeds realized from exports of relevant year are to be considered while computing PLI of the assessee. In view thereof, we modify the order of CIT(A) and direct the Assessing Officer to re-compute the PLI in the hands of assessee and foreign exchange fluctuation losses of the earlier years are to be k....