TaxTMI 
TaxTMI 
2022 (8) TMI 1449
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....he course of assessment proceedings, it was noticed 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 a....
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....preciating that even if such notional interest adjustment was to be made in relation to the alleged international transaction of outstanding trade 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 function....
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....ertains to the said assessment year needs to be excluded for the determination of the ALP. 8. The learned Departmental Representative, on the other hand, relied on the orders of the TPO and the 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....
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....nterest has been imputed for the entire year on the receivables instead of the remaining delayed beyond six months. The learned AR has further submitted that the benchmark of six months has been arrived at after considering 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 internati....
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....26,09,34,331 17,28,84,195 Plus / Minus 5% margin 39.32% 26.05% No of comparables ITeS Reference Selected by NTSIPL 11 Refer TP study at page 252-256 of PB Rejected by the TPO 6 Refer page 7 of the TPO order at page 58 of appeal set Rejected by PO pursuant to DRP directions (suo moto) 1 Refer TPO OGE at pg 1 of PB Accepted by the TPO 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 Infosy....
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.... M/s. Infosys BPO Limited, whose turnover is Rs. 1312 Crores and (ii) TCS E-Serve Limited, whose turnover is Rs. 1578.40 Crores. Accordingly, we hold that the aforesaid two companies should be removed from the list of comparable companies. The TPO is directed to compute the average Arithmetic Mean profit of the comparable companies chosen by the TPO, after excluding the aforesaid two companies. 15. In view of the above order of the Coordinate 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 th....
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....IL for Infra Activity segment, hence, the information provided as per section 133(6) by EIL is unreliable and should not be used to compute employee cost for ITES segment. The learned AR further submitted that EIL has a declining trend in the operating revenue from financial year 2009-2010 to 2013-2014. Therefore, it was submitted that EIL should be excluded from the comparable list. 22. The learned DR was duly heard. 23. It is the submission of the learned 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 assesse....