TaxTMI 
TaxTMI 
2022 (8) TMI 1449
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....iced that the assessee had entered into international transactions with its AE. Accordingly, the case was referred to the Transfer Pricing Officer (TPO) to determine the Arm's Length Price (ALP) of the international transaction undertaken by the assessee with its AE's. The TPO vide order dated 28.01.2016, passed u/s 92CA of the I.T. Act, proposed the following TP adjustments:- (i) Interest chargeable on trade receivables Rs. 4,14,87,100 (ii) ALP adjustment to the ITES segment of the assessee Rs. 12,55,88,656. The A.O. passed the draft assessment order in conformity with the TPO's order. 3. Aggrieved by the draft assessment order, the assessee filed objections before the Dispute Resolution Panel (DRP). The DRP directed to make following adjustment to the ITES segment:- (i) Directed the TPO to treat foreign exchange as operating in nature in respect of margin of assessee as well as comparables; (ii) Exclude 2 companies namely, (a) Accentia Technology Ld., and (b) Informed Technologies India Ltd. as comparable. 4. Pursuant to the DRP's directions, the ALP adjustment to the ITES segment of the assessee was reduced from Rs. 12,55,88,656 to Rs. 5,47,65,344. The A.O. passed the....
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....de receivable, the same could have been made in the A Y 2013-14. Transfer pricing adjustment relating to Information Technology Enabled Services 9. That on the facts and circumstances of the case and in law, the AO/TPO have erred in making the transfer pricing adjustments of INR 5,47,65,340, and the DRP erred in upholding the same in respect of information technology enabled services, alleging the said services to be not at arm's length in terms of the provisions of sections 92C(1) and 92C(2) of the Act, read with Rule 10B of the Income-tax Rules,1962 ("the Rules"). 9.1 That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred, in arbitrarily rejecting certain functionally comparable companies identified by the Appellant on a subjective basis, inter alia, using unreasonable comparability criteria. 9.2 That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in arbitrarily selecting comparable companies based on incorrect appreciation of functional, asset and risk profile, and arbitrary filters. 9.3 That on the facts and circumstances of the case and in law, the AO/DRP/TPO have erred in selecting company hav....
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....he DRP. 9. We have heard rival submissions and perused the material on record. The submissions was limited to the adoption of the LIBOR rate against Indian interest rates (14.47% being return on BBB rate Bonds), as trade receivables where USD-denominated. The learned AR has placed reliance on the ruling of this bench in the case of M/s. Bioplus Life Sciences Private Limited v. DCIT (supra). The relevant extract of the ruling reads as follows:- "6.3 We have heard rival submissions and perused the material on record. The Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) by following the judgment of the Hon'ble jurisdictional High Court in the case of PCIT v. AMD (India) Pvt. Ltd. in ITA No.274/2018 (judgment dated 31.08.2018) held that deferred revenue from AE would constitute independent international transaction and the same needs to be benchmarked independently. Further, it was held by the Tribunal that the rate of interest to be adopted is at LIBOR + 2%. The relevant finding of the co-ordinate bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra), reads as follows:- "37. Once w....
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....the agreement between the assessee and its AE. It is the submission of the assessee that the amount received within a period of 180 days has not been considered for imputing the interest, as it has been realized within the period allowed under the agreement. However, the assessee has claimed that in a case where there is a delay beyond 180 days, the interest has been computed for one year. The learned DR has submitted that the benchmark of six months beyond which trade receivable has been considered as an international transaction, is without logic. It was argued that such a period has to be untainted and should usually be a period that is allowed by a comparable company while dealing with an independent third party. We find merit in the submission of the learned DR that the period mentioned in the agreement between the assessee and AE should not be considered for the purpose of benchmarking and even to determine whether trade receivable constitutes an international transaction. The very purpose of undertaking benchmarking exercise is to compare the tainted transaction, i.e., the transaction between two related parties/AEs, with that of transactions that are carried on by independe....
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....PO 5 Refer page 7 of the TPO order at page 58 of appeal set New comparables introduced by the TPO 4 Refer page 141 of PB Final set of TPO 8 Refer TPO OGE at pg 5 of the PB 10. The learned AR's limited submission before the Tribunal as regards ITES segment is for exclusion of following four companies on the ground of turnover and functional incompatibility:- (i) TCS E-serve Limited (ii) Infosys BPO Limited (iii) Universal Print Systems Limited (iv) Excel Infoways Limited (Segment) We shall consider each of the above companies as under:- TCS E-Serve Limited 11. The TPO held that the company is mainly engaged in providing BPO services in BFSI domain and therefore is functionally comparable. The DRP held that since DRP has held that Infosys is comparable, therefore, on the same basis TCS-E-Serve Limited is also directed to be comparable. 12. The learned AR has sought exclusion of this comparable company on the basis of application of high turnover filter. The assessee has demonstrated that the turnover of the comparable selected by the TPO is 20 times its turnover. While the assessee has an operating revenue of Rs. 79 crore, it was submitted that it cannot be compa....
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.... Bench of the Tribunal, we direct to exclude this company from the list of comparable companies. Infosys BPO Limited 16. The learned AR has submitted that a company with a turnover of Rs. 1290 crore cannot be comparable to the assessee company, which has a turnover of Rs. 79 crore. Respectfully following the ruling of the coordinate Bench of the Tribunal in the case of M/s. Fulcrum Fund Services (India) Private Limited v. ITO (supra), we direct the AO/TPO to exclude this company from the list of comparables. Universal Print Systems Limited 17. The learned AR has submitted that the company is not functionally comparable as it is involved in providing labeling, pre-press activities and other integrated printing solutions. Though the TPO has selected the pre-press BPO segment, it is contested that TPO has not provided any information as to how the segment under consideration has been selected as a comparable. The assessee has placed reliance on the ruling of Bangalore Bench of the Tribunal in the case of XLHealth Corporation India Private Limited v. ACIT in IT(TP)A No.2311/Bang/2017 (order dated 09.02.2018) for assessment year 2012-2013. 18. The learned Departmental Representat....
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....AR that the company Excel Infoways Limited fails the employees filter and has unreliable data. This contention of the assessee, which is elaborated at para 21 (supra) was not raised before any of the authorities. Therefore, for necessary verification of the matter, the issue of exclusion of Excel Infoways Limited is restored to the files of the TPO. The TPO is directed to examine the contentions raised, which mentioned supra, and shall verify whether Excel Infoways Limited satisfies the employees cost filter. It is ordered accordingly. 24. In views of the above, ground 9 and its sub-grounds are partly allowed as indicated above. Negative Working Capital Adjustment (Ground 9.5) 25. It was submitted that the assessee is a captive service provider, which is entirely funded by the AE and it does not have any borrowings. Therefore, it was stated that the assessee did not bear any working capital risk. It was contended that the assessee was running the business without any working capital risk as compared to the comparables. Hence, it was stated that the TPO has erred in making negative working capital adjustment of (-) 7.86%, which resulted in imputing an additional cost, which enti....