TaxTMI 
TaxTMI 
2019 (10) TMI 1286
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.... Enterprises ('AE' for short), which was reduced to 1,31,74,095/- upon giving effect to the DRP's directions; 2. Disallowance of deduction claimed under Section 10AA of the Act upon reducing telecommunication expenses only from the export turnover without corresponding reduction from total turnover; 3. Disallowance of employees' contribution made under the Employee State Insurance Act, 1948; and 4. Short-grant of credit of taxes deducted at source. 2. The assessee is a company incorporated under the provisions of Companies Act, 1956 and is engaged in providing contract software development services (SWD services) and contract information technology enabled services (ITES) to its Associated Enterprises (AE) as a captive service provider. The first issue that needs to be decided in this appeal is as to whether the consideration received by the assessee for providing IT enabled services (ITES) to its AE is at arms length as laid down under the provisions of section 92 of the Act. The assessee received a sum of Rs. 13,60,48,189/- for providing ITES to its AE. To justify the price paid in the international transaction as at arms length, the ....
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.... Ltd., TCS E-Service Ltd., and BNR Udyog Ltd. As far as Infosys BPO Ltd., is concerned, the learned Counsel for the assessee brought to our notice a decision of the ITAT, Bangalore Bench, in the case of Zyme Solutions Pvt. Ltd., Vs. ACIT in IT(TP)A No.1661/Bang/2016 dated 16.11.2018 and another order in the same case dated 28.06.2019. In the aforesaid order dated 28.06.2019, the Tribunal considered exclusion of Infosys BPO Limited, an assessee who is also engaged in rendering ITES such as the assessee. The Tribunal held that the aforesaid 2 companies should be excluded from the list of comparable companies as they were not functionally comparable with ITES. The following were the relevant observations of the Tribunal:- "5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ALIT ITA No.6158/Del/2016 for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- "23. In so far as exclusion of Infosys BPO Ltd. is con....
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....ed by the Tribunal this company was retained as a comparable company. In the M.P. filed by the Assessee it was pointed out that the chart filed at the time of hearing before the Tribunal, the assessee company sought to exclude this company on the ground that the turnover of this company was only 1.7 cores and it cannot be compared with turnover of assessee which was 30.6 crores. It was also submitted on behalf of the assessee that this company has related party transaction (RPT) over and above the threshold limit of 15% and is also functionally different. The assessee in this regard at the time of hearing placed reliance on the decision of ITAT Bangalore Bench in the case of Indegne Pvt. Ltd., Vs. ACDIT in IT(TP)A No.591/Bang2017 for asst. year 2012-13 order dated 2/8/2017 wherein at page 10 of this order in para 10.3.2 the Tribunal remanded the matter of comparability of this company with ITES company. Decision in the case of M/s e4e Business Solution India Pvt. Ltd., Vs. ITO in IT(TP)TP No.451/Bang/2017 was also filed in support of assessee's claim for remand on functional comparability. The Tribunal in the impugned order however in paragaraph 13 to 13.2 followed the decision....
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....y this Tribunal in the case of Zyme Solutions Ltd., in its order dated 16.11.2018 as follows:- "11. TCS E Service Ltd.: This company was selected by the TPO and objected by the assessee for inclusion in the list of comparables on the ground that it is functionally different as it is engaged in the business of BPO, banking, finance, insurance domain. This contention was rejected by the TPO by holding that it is engaged in BPO, business of banking, finance, insurance domain, which are purely in the nature of ITES. Even the Hon'ble DRP confirmed the findings of the TPO. 11.1 Being aggrieved, the assessee is before us contending that this company is functionally different as it is engaged in diversified business activities of BPO such as banking, finance, insurance. Learned AR of the assessee has also drawn our attention to the Annual Report placed at pages 563 to 563 of the paper book and reliance in this regard was placed on the following decisions: Turnover Filter: i. McAfee Software (India) Pvt Ltd US-136-ITAT-2016(Bang)-TP] ii. Swiss Re Global Business Solutions India (P.) Ltd. FS-307-ITAT- 2017(Bang) Functionally different....
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....espectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion of this company from the list of comparable." 11. Respectfully following the aforesaid decision, we hold that TCS E Service Ltd., should be excluded from the list of comparable companies. 12. The next issue that needs to be adjudicated is as to whether foreign exchange fluctuation gain or loss should be considered as part of the operating profit while computing the profit margin of the assessee as well as the comparable companies. The main reason why the DRP considered foreign exchange gain should not be treated as a part of the operating profit was due to the fact that the assessee in the preceding Assessment year did not consider foreign exchange loss as operating in nature. The DRP was of the view that the assessee has to be consistent in the approach in this regard. 13. At the time of hearing, however, the learned Counsel for the assessee brought to our notice the decision of the ITAT Bangalore Bench in the case of Finastra Software Solutions (India) Pvt. Ltd., Vs. ACIT (2018) 93 taxmann.com 460 (Bangalore - Trib.) wherein this Tribunal considered the very same issue and he....
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....nsel for the Assessee therefore submitted that profit arising from comparable transaction will not be materially affected by adopting the foreign exchange gain as reflected in the accounts of the comparable companies because the terms of credit are almost identical in the line of business of SWD Services and ITES. 39. We have considered the rival submissions and are of the view that in the light of Rule 10B(3) of the Rules and the business cycle in the relevant business, the comparability will not be materially affected if the foreign exchange gain is considered as reflected in the accounts of the comparable companies as available in public domain. To this extent the decision rendered by the Bangalore Bench of ITAT in the case of Commonscope Networks (India) Pvt.Ltd. (supra) is distinguishable. Therefore respectfully following the decision of the ITAT Bangalore in the case of SAP Labs India (P.) Ltd. (supra), we hold that the DRP was justified in directing the AO to consider the foreign exchange gain or loss as operating in nature. Therefore, in light of the above, this ground of the Revenue is liable to be dismissed." 14. In view of the aforesaid decision, we are of th....