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2020 (8) TMI 815
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....ield of data processing to its associated enterprises under agreement dated 20.02.2010. 5. The international transactions entered into by the assessee company with its AEs during the year relates to provision of services amounting to Rs. 34,10,56,045/-. The TNMM was selected as the most appropriate method with PLI OP/OC. 6. The assessee computed its PLI at 19.05% whereas the same was computed at 13.61% by the TPO. 7. While computing the operating margin of the appellant company, the TPO excluded the following: i. FOREX Fluctuation ii. Domestic Revenue iii. Prior period expenses 8. The first grievance of the assessee relates to the re-computation of operating margin by the TPO. Before us, the Counsel for the assessee vehemently stated that in so far as the FOREX Fluctuation is concerned, the Tribunal in assessee's own case for A.Y. 2011-12 in ITA No.6078/Del/2012 has held that profit/ loss arising from FOREX Fluctuation is in the nature of operating income. Copy of the order was supplied. 9. Per contra, the DR strongly supported the findings of the lower authorities. It is the say of the DR that the FOREX gains/ loss on receivable is arising....
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....to be operating in nature while working out the profit margin of the assessee." 11. As no distinguished fact has been brought to our notice, therefore, respectfully following the decision of the Co-ordinate Bench (supra), we direct the AO/ TPO to consider FOREX Fluctuation as income to be in operating in nature while working out the profit margin of the appellant. 12. In so far as, prior period expenses are concerned. The Counsel drew our attention to the decision of the Co-ordinate Bench in the case of Tupperware India Pvt. Ltd. in ITA No.2140/Del/2011 wherein the Tribunal has held that prior period expenses are not to be considered as part of operating expenses for the purpose of calculating the operating margin. 13. Per contra, The DR supported the findings of the lower authorities. We have given a thoughtful consideration to the order of the authorities below. In our considered view prior period expenses which are charged to the P&L account relates to a period prior to the year under consideration. Therefore, to determine the correct operating profit for the year under consideration, the same should not be considered as part of the operating expenses for the year. A si....
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....cannot be taken into account for computing the operating profit as under the TP adjustments. The transactions and revenue related to the associated enterprises are considered to determine the arm's length price of a transaction. In our considered view, if the domestic sale were to be taken into consideration, the bench marking analyses for determining the ALP of a transaction would be skewed. We accordingly confirmed the exclusion of domestic sales. 16. Proceeding further with the other grievance of the assessee, we find that the TPO has re-characterised the business of the assessee as KPO service provider and has considered companies engaged in the business of providing KPO service in the final set of comparable companies. We have carefully considered the outsource service agreement dated 20.02.2010 entered into between the appellant with its AE. We find that the scope of work carried out by the appellant is merely data processing/ data feeding. We further find that in A.Y 2011-12, the Tribunal in assessee's own case in ITA No.6078/Del/2015 has held that the appellant is not a KPO. The relevant findings of the Co-ordinate Bench read as under: "41. We have heard the riv....
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....issue for A.Y. 2013-14 has rejected the TPO's contentions of considering the assessee as the KPO service provider and held assessee to be a routine ITES company. Before us, Learned DR has supported the re-characterization made by the TPO and submitted that though the business of the assessee would have been characterized as ITES in earlier and subsequent year but in view of the principle of res judicata being not applicable to income tax proceedings and each assessment year being distinct and different, the order of TPO needs to be upheld. We are aware of the principles that res judicata principle is not applicable to the income tax matters but at the same time it is also a settled law that there ought to be uniformity in treatment and consistency when facts and circumstances are identical. In the present case, as noted above, the business of the Assessee has been held to be in ITES segment in AY 2010-11 by the co-ordinate Bench of Tribunal and by DRP in AY 2013-14. Before us, no material has been placed by the Revenue to demonstrate that the characterization of the assessee as ITES service provider as held by the Tribunal in earlier years has been set aside/ stayed or overruled by....
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....e purpose of benchmarking international transaction of BPO services. In view of these facts, we are of the view that the aforesaid company needs to be excluded as a comparable company and accordingly direct its exclusion. ii. BNR Udyog Ltd. 22. The Counsel for the assessee at the very outset stated that though the TPO has adopted RPT filter @ 25% but did not consider the exclusion of this company which has RPT of 47.95%. The Counsel furnished the computation of RPT to sales. A perusal of the computation filed by the Counsel show that the RPT/ sales ratio of this company comes to 47.95%. We accordingly direct the AO/ TPO to examine the computation of RPT/ sales and if found in excess of 25% this company should be excluded from final set of comparables. iii. Infosys BPO Ltd. 23. The Counsel vehemently stated that this company has been excluded in a series of decisions across the country by various benches of the Tribunal and also by the Hon'ble High Courts. In particular the Counsel referred to the decision in the case of Avaya India Pvt. Ltd. in ITA No.532/2019. 24. Per contra, the DR stated that TNMM being more prominent takes care of material itself in terms of situ....
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....e a capital service provider without much intangible and risks. 25. In this context it requires to be noted that the ITAT also referred to the decision of this Court CIT v. Agnity India Technologies Private Limited (2013) 36 Taxmann.com 289. 26. The Court may also note that the Karnataka High Court has in PCIT v. Softbrands (2018) 406 ITR 513 (Kar) noted as under: "48. The Tribunal of course is expected to act fairly, reasonably and rationally and should scrupulously avoid perversity in their Orders. It should reflect due application of mind when they assign reasons for returning the particular findings. 49. For instance, while dealing with comparables of filters, if unequals like software giant Infosys or Wipro are compared to a newly established small size Company engaged in Software service, it would obviously be wrong and perverse. The very word "comparable" means that the Group of Entities should be in a homogeneous Group. They should not be wildly dissimilar or unlike or poles apart. Such wild comparisons may result in the best judgment assessment going haywire and directionless wild, which may land up the findings of the Tribunal ....
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....t of comparables for the purposes of determining the ALP of the international transactions involving the Assessee and its AEs. Conclusion 30. For the aforementioned reasons, the question framed is answered in the negative i.e. in favour of the Assessee and against the Revenue. The impugned order of the ITAT as well as the corresponding orders of the DRP and TPO on the issue are hereby set aside. The appeal is allowed in the above terms but in the circumstances no order as to costs." iv. Eclerx Services Ltd. 26. The Counsel stated that this company has been rejected by the Tribunal in assessee's own case in A.Y. 2011-12 in ITA No.6078/Del/2015 on the ground that this company is a KPO service provider. The relevant findings of the Co-ordinate Bench read as under: "47. With respect to Exlerx Services Ltd., we find that Learned AR has pointed to its business which is in the nature of knowledge processing outsourcing (KPO) namely web analytics, business intelligence, competition benchmarking and pricing, consulting etc. We find that the Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. (supra) has held it to be a company enga....
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....of Court, cannot be termed as unreasonable. The rationale for exclusion is therefore upheld."" 31. With our utmost respect to the decision of the Co-ordinate Bench, the higher wisdom of the Hon'ble Jurisdictional High Court should prevail. We, therefore, respectfully following the findings of the Hon'ble Jurisdictional High Court (supra), direct for the exclusion for this company from the final set of comparables. 32. In the light of the afore mentioned findings, we hold accordingly. 33. The last grievance relates to the charge of interest u/s 234C of the Act. We direct the AO/ TPO to charge interest u/s 234C of the Act on the returned income of the assessee as per the provision of law. 34. In the result, appeal of the assessee in ITA No.1178/Del/2017 is allowed. ITA No.4607/Del/2017 for A.Y. 2013-14 35. The business profile of the assessee remains the same as discussed in ITA No.1178/Del/2017 (supra). The first grievance is similar to the grievance raised in ITA No.1178/Del/2017 (supra) and relates to the computation of the operating margin of the appellate company. The appellant company has computed its operating margin at 12.62% whereas the TPO has computed the....