TaxTMI 
TaxTMI 
2021 (2) TMI 267
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....with AE has to be computed having regard to the arm's length price [ALP]. 3. The Assessee filed a Transfer Pricing Study (TP Study) to justify the price paid in the international Transaction as at ALP by adopting the Transaction Net Margin Method (TNMM) as the Most Appropriate Method (MAM) of determining ALP. The Assessee selected Operating Profit/Operating Cost (OP/OC) as the Profit Level Indicator (PLI) for the purpose of comparison. The OP/OC of the Assessee was arrived at 17.48% by the Assessee in its TP study. The operating income was Rs. 94,37,10,000/- and the Operating Cost was Rs. 80,32,95,000/-. The Operating profit (Operating income - Operating cost was Rs. 14,04,15,000/-. Thus the OP/TC was arrived at 17.48%. The Assessee chose companies who are engaged in providing similar services such as the Assessee. The Assessee identified companies whose average arithmetic mean of profit margin was comparable with the Operating margin of the Assessee. The Assessee therefore claimed that the price it charged in the international transaction should be considered as at Arm's Length. 4. The Transfer Pricing Officer (TPO) to whom the determination of ALP was referred to by....
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.... the Disputes Resolution Panel (DRP) against the draft assessment order passed by the AO wherein the addition suggested by the TPO as adjustment to ALP was added to the total income of the Assessee by the AO. The DRP gave certain directions to exclude 3 comparable companies chosen by the TPO. Based on the directions of the DRP, the AO passed the final order of assessment. To the extent the Assessee did not get relief from the DRP, the Assessee preferred appeal before the Tribunal. 7. Aggrieved, the Assessee filed an appeal against the final order of the AO. The Hon'ble Tribunal vide its order in IT(TP)A No. 244 (Bang) 2017 dated 28.07.2017 remanded back to the AO/TPO with the following direction:- 7. We have considered the rival submissions. First of all, we reproduce para-33 of the judgment of the Hon'ble Delhi High Court rendered in the case of Chryscapital Investment Advisors (India) Private Limited (Supra) as under:- "33. Such being the case, it is clear that exclusion of some companies whose functions are broadly similar and whose profile in respect of the activity in question can be viewed independently from other activities cannot be subject to a....
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.... per the above discussion, after providing adequate opportunity of Being heard to the assessee. 9. In the result, the appeal of the assessee stands allowed for statistical purposes. 8. Further vide its order in M.P. No. 250/Bang/2017 in IT(TP)A No. 244/Bang 22017 dated 15.12.2017, the Hon'ble ITAT Bangalore gave the following direction:- We have considered the rival submissions. We find that at the time of hearing of the appeal, the Ld. AR of assessee has filed a chart and the appeal was heard on the basis of chart. In the said chart, the contentions are raised regarding margin computational error in the respect of two comparables i.e., Accentia Technologies Ltd. and e4e Healthcare Business Private Limited and for the remaining four comparables, the only contention raised was regarding turnover filter and there is no contention raised regarding the functionality aspect. Hence on this aspect, we find no apparent mistake in the impugned Tribunal order because it appears that no argument was made in respect of this aspect. Regarding the second aspect i.e. regarding Foreign Exchange fluctuation gain/loss, in the chart, several judgments are cited by Ld....
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....ded in sale proceeds and is not shown separately in the final accounts. The AO/TPO should decide this issue afresh as per above discussion after providing reasonable opportunity of being heard to assessee. Ground No. 9 of the assessee's appeal stands allowed for statistical purposes. 9. Pursuant to the above, the TPO passed order dated 01 October 2018 giving effect to the order of the Hon'ble ITAT. In this order, the TPO considered foreign exchange gain as part of the operating profits of the Assessee for the purpose of comparing Assessee's profit margin with that of comparable companies. The TPO in this order made an adjustment of INR 14,30,29,841 in relation to the ALP of international transaction of provision of IT enabled services was re-determined. Based on this order of the TPO the AO issued a draft assessment order on which the assessee filed objections before DRP. 10. On objection by the Assessee to the order of the TPO/AO the DRP excluded BNR Udyog Ltd., from the list of comparable companies. Therefore only 6 out of the 10 comparable companies remained as comparable companies after the order of the DRP. In this appeal the Assessee seeks only two reliefs v....
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.... view of the Hon'ble Bombay High Court on the issue. Respectfully following the aforesaid decision, we uphold the order of the DRP excluding 5 companies from the list of comparable companies chosen by the TPO on the basis that the 5 companies turnover was much higher compared to that the Assessee. 17.8. In view of the above conclusion, there may not be any necessity to examine as to whether the decision rendered in the case of Genisys Integrating (supra) by the IT AT Bangalore Bench should continue to be followed. Since arguments were advanced on the correctness of the decisions rendered by the ITAT Mumbai and Bangalore Benches taking a view contrary to that taken in the case of Genisys Integrating (supra), we proceed to examine the said issue also. On this issue, the first aspect which we notice is that the decision rendered in the case of Genisys Integrating (supra) was the earliest decision rendered on the issue of comparability of companies on the basis of turnover in Transfer Pricing cases. The decision was rendered as early as 5.8.2011. The decisions rendered by the ITAT Mumbai Benches cited by the learned DR before us in the case of Willis Processing Services (s....
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....14, order dated 31.03.2016 wherein it was held that negative working capital should not be computed and adjusted. The Ld. DR relied on the decision of the Coordinate Bench in the case of Technotree Convergence P. Ltd. v. DCIT in IT(TP)A No. 1616/Bang/2017, order dated 27.06.2018 wherein it was held that negative working capital should be allowed. 14. On this issue, we are of the view that working capital adjustment is made for the time value of money lost when credit period is given to customers. It is the submission of the Ld. counsel for the assessee in this case that the assessee is a captive unit which is entirely funded by the AE. The assessee has no borrowings and is fully compensated by the parent on a total cost plus. The assessee has no working capital risk - in other words, it is a risk-insulated service provider to the parent. The only customer of the company is its parent company. The Ld. counsel for the assessee has relied on a host of ITAT decisions, the main decision being that of M/S. Software AG Bangalore Technologies Pvt. Ltd. (supra) which in turn has relied on the decision of ITAT Hyderabad in the case of Adaptec (India) Private Limited and contended that no ....