TaxTMI 
TaxTMI 
2021 (11) TMI 1231
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....tification to UL Group, an Associate Enterprise (AE) and the transaction of rendering of ITeS to UL Group an AE, were international transactions and were subject matter of determination of Arm's Length Price (ALP) by the AO under the provisions of section 92 of the Act. Apart from the corporate tax issue, the 2 issues that needs to be decided in this appeal are with regard to determination of ALP in respect of international transaction of rendering testing and safety certification services to the AE and rendering of ITeS to AE. 3. Grounds 1 to 9 raised by the assessee were not pressed and they are dismissed as not pressed. Grounds 10 to 20 are grounds raised by the assessee challenging the determination of ALP in respect of the international transaction of rendering testing and safety certification services by the assessee. As far as the international transaction of certification services is concerned, the assessee rendered certification services to AE as well as non-AEs. For the purpose of determining the ALP, the method adopted was Transaction Net Margin Method (TNMM). The assessee had chosen comparable companies rendering certification services and compared their profit m....
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....t or loss under the transfer pricing provisions. As far as Related Party Transaction (RPT) is concerned, the TPO applied 25% of the total revenue as a threshold limit for excluding a company on the basis of RPT filter i.e., if a company chosen as comparable company has transactions with a related party and the value of such transactions is 25% or more than that company cannot be regarded as comparable company. The DRP accepted the same and rejected the claim of assessee that threshold limit should be 15% of the total revenue for the purpose of applying the RPT filter. The other objections raised by the assessee were not considered by the DRP. It is in this scenario that the assessee has raised grounds 10 to 20 have been raised by the assessee before the Tribunal. 7. We have heard the rival submissions. The ld. counsel for the assessee submitted that the law with regard to treating foreign exchange loss/gain as part of operating profit/loss has been well settled in several decisions and in this regard relied on the decision of ITAT Bangalore Bench in the case of SAP Labs India (P) Ltd. (supra). He submitted that the TPO while computing Profit Level Indicator (PLI) of the assessee....
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....ave given a careful consideration to the rival submissions and are of the view that the issue with regard to determination of ALP in the certification services segment should be remitted back to the TPO. Accordingly, the issue is restored back to the TPO for fresh consideration with the following directions :- (1) The foreign exchange loss/gain to the extent it relates o revenue items and are directly related to certification services rendered by the assessee should be considered as part of the operating profit or loss, as the case may be. The law in this regard is well settled by the decision rendered by the ITAT Bangalore Bench in the case of SAP Labs (supra) and Auto Desk India Pvt. Ltd. Vs. DCIT IT(TP)A. No. 540 & 541/Bang/2013. (2) The TPO should restrict the addition only in respect of international transactions with the AE. However, the submission made by the Id. DR with regard to a part of the certification services having been subcontracted to the AE and receipt of sub-contracting charges from the AE to the extent the same will have impact on the consideration received from the AE for rendering the certification services should also be examined by the TPO....
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....ferential existing between the Appellant vis-a-vis independent comparable companies. 25. The learned AO/learned TPO/ Hon'ble DRP erred in not considering provision from doubtful debts as an operating item. 26. The learned AO/learned TPO/Hon'ble DRP erred in not allowing appropriate adjustment towards the risk differential between the Appellant vis-à-vis independent comparable companies. 11. As far as the provision of Software Development services are concerned, 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 of the assessee's profit margin with that of the comparable companies. The OP/OC of the assessee was arrived at 0.15 % by the assessee in its TP study. The operating income was Rs. 3,59,44,470/- and the Operating Cost was Rs. 3,12,03,040/-. The assessee chose companies who are engaged in providing similar services such as the asse....
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....for the assessee submitted that he would press for adjudication of only exclusion of Infosys BPO Ltd., and Microland Ltd., which are set out in ground No.22. He also submitted that with reference to inclusion of comparable companies, he would press for adjudication of only 3 comparable companies set out in ground No.23 viz., Informed Technologies Ltd., Crystal Voxx Ltd., and Jindal Intellicom Ltd. It was also submitted that the assessee would press for adjudication of only ground No.24 with regard to grant of working capital adjustment. Learned Counsel for the assessee brought to our notice the decision of the Tribunal in the case of Ocwen Financial Solutions Pvt. Ltd., Vs. JCIT in IT(TP)A No.3068/ang/2018 for Assessment Year 2014-15, order dated 17.07.2019 wherein all the aforesaid issues which the learned Counsel for the assessee has prayed for adjudication in this appeal has been decided by the Tribunal. It is not in dispute before us that the profile of the assessee in this appeal and the profile of M/s. Ocwen Financial Solutions Pvt. Ltd., are identical and the comparable companies chosen by the TPO in both the cases are one and the same. The Tribunal in the aforesaid order de....
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....n.com97 (Bangalore - Trib) for Assessment Year 2012-13, cited by the assessee, this company 'Infosys' has been excluded from the list of comparables for the reason that it has brand value which had an impact on its pricing and margins. As the facts of the year under consideration are similar, the decision rendered in the earlier year would apply to the year under consideration as well. In this factual view of the matter, we hold that Infosys BPO Ltd., stands on a totally different footing from a company engaged in rendering routine back office ITES; being both functionally different and having brand value and therefore is to be excluded from the final set of comparables. We hold and direct accordingly. ...... Microland Ltd. 8.4.1 We have considered the rival contentions / submissions put forth and perused the material on record. This company, 'Microland' was selected as a comparable by the TPO. In his order, the TPO has stated that this company 'Microland' is currently organized in business segments, comprising of infrastructure management services and IT Enabled Services (ITES). On the objections raised by the assessee that 'M....
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....has reached the same conclusion n the subsequent Assessment Year 2015-16; that the Infrastructure segment services segment is not comparable to ITES. 8.4.4 At page 97 of the Annual Report of 'Microland' for the year under consideration, the segmental details of the two business segments are provided from which it is seen that out of the total revenue of Rs.34,471 lakhs, the revenue from ITES segment is Rs.1959 lakhs; which is 5.68% of the total revenue. As we have concluded that the infrastructure services segment is a different business segment not comparable to ITES rendered; this company, 'Microland' fails the filter adopted by the TPO that companies whose service income is less than 75% of total operating revenue are to be excluded. In view of the facts and circumstances of the case, as discussed above, and in view of the above factual findings, we hold that Microland Ltd., should be excluded from the final set of comparables in the case on hand." 16. Respectfully following the aforesaid decision, we direct exclusion of Infosys Technologies Ltd., and Microland Ltd., from the list of comparable companies. 17. With regard to inclusion of Informed Te....
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....arable to the assessee in the case on hand; which is rendering back office ITES. From a perusal of the profit and loss account at page 30 of the Annual Report of 'Informed' it is seen that the total revenue is shown as Rs. 3,81,38,665/- and 'other income' of Rs. 1,22,85,303/-. As can be seen from Schedule 19 on page 40 of the Annual Report, the 'other income' comprises of non-operating income, interest, dividend, sale of current investments and miscellaneous income and evidently these incomes cannot be considered as operating income. The percentage of 67.7% worked out by the TPO is after considering these "other income" as service income; which is factually incorrect. It is evident from a perusal of the profit and loss account of 'Informed' that the service income is Rs. 2,58,53,362/- which is entirely the revenue from operations and therefore in our considered view, the service income filter of 75% of service income to be from ITES as applied by the TPO, is satisfied in this case. In view of this factual finding rendered in the matter, we hold that this company 'Informed Technologies Ltd.,' satisfies the service income filter and is therefor....
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....clusion of this company, 'Crystal' is factually incorrect. Taking into consideration that the company 'Crystal' is otherwise comparable to the assessee in the case on hand as it is operating as a BPO company which is a provider of ITES, we direct that this company, Crystal Voxx Ltd., be included as a comparable company in the final set of comparables in the case on hand. The AO / TPO are accordingly directed. 12. Jindal Intellicom Ltd., ('Jindal') 12.1 This company, 'Jindal' was proposed by the assessee before the TPO as an additional comparable for inclusion in the final set of comparables. The TPO, however, rejected the assessee's proposal on the grounds that this company 'Jindal' is engaged in providing services of a call centre in the overseas and domestic market; export of call centre services forming a major part of its business activities it was functionally different from the assessee and further on account of non-availability of segmental data. The DRP concurred with the findings of the TPO; holding that this company, 'Jindal', is engaged in both software development services and ITES and therefore it is....
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....ibunal, in the case of CGI Information Systems and Management Consultants Pvt. Ltd., (supra) for Assessment Year 2012-13 has held that this company should be included in the set of comparables for companies rendering ITES and in this regard at para 56 thereof has held as under: - 56. The same reasoning given for including Informed Technologies India Ltd., would apply for including Jindal Intellicom Ltd., also. This company was selected by the Assessee in its TP study and accepted by the TPO as being comparable to it (pages 16-17 of the TP order). Since it passed all the filters applied by the TPO, as subsequently upheld by the DRP, it was rightly included in the list of comparables. In the proceedings before the DRP, the Assessee did not object to its inclusion in the list of comparables. However, despite the above, the DRP on its own directed its exclusion on the premise that since it catered only to customers in USA, where there was allegedly an adverse business climate for outsourcing work, its profitability was impacted. According to the DRP the Assessee's AE was in Netherlands where there was no adverse market conditions and therefore Jindal Intellicom Ltd., was l....
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....the AO / TPO to include this company 'Jindal Intellicom Ltd.,' in the final set of comparables. 18. Respectfully following the aforesaid decision, we direct inclusion of the aforesaid three companies in the list of comparable companies. 19. With regard to allowing working capital adjustment, the Tribunal in the case of Huawei Technologies India (P) Ltd., Vs. JCIT (2019) 101 taxmann.com 313 (Bangalore Tribunal) finally held that working capital adjustment should be allowed as per actuals. We are of the view that following the aforesaid decision, the plea raised by the learned Counsel for the assessee for grant of working capital adjustment is allowed. 20. Ground No.27 raised by the assessee reads as follows: B. Corporate Tax 27. Change in method of revenue recognition a. The learned AO and the Hon'ble DRP have erred in concluding that the change in method of revenue recognition from proportionate completion method to completed contract method is not bonafide. b. The learned AO and the Hon'ble DRP have failed to appreciate the judicial precedents wherein it is held that a bonafide change in the method of accounting cannot b....
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.... The learned AO ought to have placed reliance on various judicial precedents wherein it is held credit for TDS has to be provided to the Appellant irrespective of the year to which the income relates. d. Notwithstanding the above, the learned AO ought not to have disallowed the TDS credit in respect of the entire advances considering that some portion of the advances were forming part of unbilled revenue and hence offered to tax. 23. As far as the aforesaid ground is concerned, both the parties agreed that it would be sufficient if the AO is directed to verify the claim of the assessee made in ground No. 28 and give credit of TDS in accordance with law, after verification. 24. Ground No.29 raised by the assessee reads as follows: 29. Non-grant of depreciation on foreign exchange loss disallowed as capital expenses in AY 2009-10 a) The learned AO and Hon'ble DRP has erred in not granting consequential depreciation of Rs. 78,044/- on foreign exchange loss of Rs. 1,605,196 disallowed and capitalized in the assessment order for AY 2009-10. 25. It was brought to our notice that identical issue was considered by this Tribunal in Assessment Year 201....