TaxTMI 
TaxTMI 
2025 (5) TMI 2317
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....production process. The assessee filed its return of income for the A.Y. 2021-22 on 13.01.2022 declaring a total income of Rs. 65,91,310/-. Subsequently the case was selected for scrutiny under CASS to verify the transactions with the AEs in other related services, BPO etc., along with the low profit before interest and tax as compared to turnover. Later the statutory notices were issued to assessee by calling for information and the assessee furnished the details and documents from time to time. The issues pertaining to the Transfer pricing, a reference has been made to the TU for determination of the ALP. The assessee submitted the complete details and stated that the assessee renders its services exclusively to its associated enterprise (AE), Information Evolution Inc., USA through its two centres located in Coimbatore and Coonoor. The quantum of international transactions for the year under consideration was Rs. 16,88,74,012/- and the same was benchmarked for determination of Arm's Length Price (ALP) by applying the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) concurred with TNMM that was adopted by the assessee in benchmarking the internati....
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....directions u/s.144C(5) dated 04.09.2024 dealt with the objections of the assessee in the following manner: a) With respect to the upward adjustment of Rs. 83,05,869/- in respect of exclusion of prior period expenses pertaining to gratuity, the DRP held as under (Refer Para 2.1 at Page 2 of DRP Directions): "2.1 Panel: The Panel perused the submissions of the assessee. The assessee has contended that that amount claimed as prior period expenses was with respect to provision made for payment of gratuity. The claim of the assessee with respect to Provision for Gratuity was verified and it was found from the computation of income that not the entire amount for provision for gratuity pertaining to prior periods was disallowed and the assessee has also claimed in the income computation a sum of Rs. 1,00,00,000/- as paid during the year. Hence the Panel is of the opinion that provisions being non ascertained liability cannot be considered as part of operating expenses. Hence the action of the TPO is confirmed. The grounds raised are rejected." b) As regards the objections in respect of exclusion of certain comparable companies chosen by the assessee, the DRP dis....
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....Act are not applicable while computing the operating margins in determining the Arm's Length Price of international transactions and that the same have no relevance. It may be noted that the computation of PLI of a company for transfer pricing purposes for a revenue transaction is arrived by using the below formula: PLI = Operating Margin / Operating Cost where Operating Margin is the difference between operating revenue and operating cost. The ld.AR further submitted that the computation of PLI is done using the books of accounts as the basis and it has nothing to do with the total income computed under the Act where various other adjustments may be made to the total income. It may further be noted that when the TPO has computed the PLI of the comparable companies using the data from the books of accounts, a different approach cannot be resorted to while computing the PLI of the appellant by using the income returned as the basis of computation. In fact, it is to be noted that the DRP was also in agreement with the plea of the assessee that the amount of prior period expenses ought to be excluded while computing operating margins, relevant portion of the DRP direct....
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....vision of gratuity is allowed, then the PLI of the assessee would be 13.71% which would eventually fall within the 35th and 65th percentile range as computed by the TPO and thereby the PLI of the international transactions in the instant case would be at Arm's Length. 7. Exclusion of certain comparable chosen by TPO on account of turnover and functional dissimilarity criteria - Concise Ground No.7 The ld.AR submitted that the assessee had sought for exclusion of 2 comparable chosen by the TPO in the final list of comparable namely TTEC India Customer Solutions Pvt. Ltd. and Tech Mahindra Business Services Ltd. on account of the following: a) Turnover Criteria TTEC India Customer Solutions Pvt. Ltd. Turnover: Rs.343.96 crores (21 times approx.) Refer Page 102 of Paper Book Assessee's Turnover: Rs. 16.88 crores Refer Page 56 of Paper Book Tech Mahindra Business Services Ltd. Turnover: Rs.785.50 crores (47 times approx.) Refer Page 115 of Paper Book From the above, the ld.AR stated that the comparable chosen by the TPO namely TTEC India Customer Solutions Pvt. Ltd. (turnover of 21 times approx.) and Tech Mahindra Business Services Ltd.....
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....xisting records and verifying content accuracy. It also acts as consultants for projects involving a new product or improved production process - Refer Para 1.1 at Page 2 of DRP Directions TTE C India Customer Solutions Pvt. Ltd. Nature of Business: Engaged in BPO services including transaction processing, email management, software consultancy, voice support and technical helpdesk - Refer Page 104 of Paper Book (Data from financials extract) Tech Mahindra Business Services Ltd. Nature of Business: a) Engaged in providing voice-based call centre services - Refer Page 116 of Paper Book (Data from financials extract) b) The company operates on large scale providing an entire gamut of services like infrastructure and cloud services, Experience Design Services, Business Process Services, Network services, Testing Services etc. - Refer Page 117 of Paper Book (Website Data) The ld.AR submitted that the comparable companies namely TTEC India Customer Solutions Pvt. Ltd. is also involved in Software Consultancy services (segmental accounts not available) where the margins earned are normally way higher than that of the ....
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.... the same to the median PLI of 14.10%. On application filed by the assessee the DRP confirmed the same. 9.2 On careful consideration of the details of the case on hand, we find that the provision for gratuity debited to the profit and loss account is an extraordinary item of expenditure. Though TPO agree with the assessee, but consider the amount as per the provisions of section 43B, instead of the amounts as per the books of accounts. Hence, we do not agree with the TPO as well as Hon'ble DRP. The principle that extraordinary items such as exclusion of prior period expenses in respect of provision for gratuity in the instant case ought not to be considered for computation of operating margins has been held in the following cases (Sl.Nos.1 and 2 of Case Law Book): 1. DCIT v TriZetto Services India (P.) Ltd. [2019] 110 taxmann.com 1 (Pune Trib.) "25. We heard both the sides on this issue and find similar issue of prior period expenditure items were adjudicated by the Tribunal. To support of the same, we extract the relevant operational para 7 to 11 of the said order ITA No.667/PUN/2016 15 of the Tribunal in the case of Aam Services India Pvt. Ltd. (supra) an....
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....uctuation losses of the earlier years are to be kept out of calculation of PLI for the year under consideration. The ground of appeal No.2 is partly allowed." 10. Thus, we dismiss the ground of appeal raised by the Revenue. 11. In the result, appeal of Revenue is dismissed." 26. Thus, it is the finding of the Tribunal Pune Bench that such prior period expenses/items/foreign exchanges losses are not to be reduced from the current year's profits for determining PLI of the year under consideration. 27. Thus, the DRP granted relief to the assessee on this issue of prior period rebate claim qua the computation of the PLI of the assessee for the current year. It is a settled legal proposition that the 'extraordinary items' such as the prior period rebate expenses should not be considered for the computation of the operating profits for the current year. Reliance is placed on the said Pune Bench decisions (supra) and the Delhi Bench decision in the case of EDAG Engg. & Design India (P) Ltd. (ITA No.3618/Del/2009)." 2. ACIT v Chemtex Global Engineers (P.) Ltd. [2013] 35 taxmann.com 351 (Mumbai Trib.) "24. We have carefully c....
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....C India Customer Solutions Pvt. Ltd. and Tech Mahindra Business Services Ltd. having turnover of Rs. Rs.343.96 crores (21 times approx.) and Rs.785.50 crores (47 times approx.) respectively, is incomparable with the assessee's turnover. 10.1 The Hon'ble Madras High Court in the case of CIT v. Visual Graphics Computing Services India (P.) Ltd. [2020] 274 Taxman 481 (Mad) after relying on various decisions in principle agreed that the turnover filter should be applied and in essence ruling that large turnover of companies cannot be considered as appropriate comparable. In the following decisions where the turnover filter was applied at a tolerance range of 10 times on both sides of assessee's turnover and companies falling outside the said range were excluded: 1. Acusis Software India (P.) Ltd. v ITO [2018] 98 taxmann.com 183 (Kar) 2. Virtusa Consulting Services (P.) Ltd. v DCIT [2024] 168 taxmann.com 709 (Chennai Trib.) 10.2 Further, in the case of Kumaran Systems (P.) Ltd. v DCIT [2021] 191 ITD 514 (Chennai Trib.) where it was held that when the assessee is having a small turnover and also catering to needs of its AEs, it cannot be compared with ....