2015 (11) TMI 1648 - AT - Income Tax

TPA - foreign exchange loss incurred by the assessee considered as operating in nature while computing the net margin of the assessee under TNMM- Held that - Gain or loss on account of foreign exchange fluctuation is part of the operating income of the assessee. Selection of comparable - Held that - Companies with exceptional circumstance and dissimilar functionality and operating in a different business strategy need to be excluded from final list of comparability.

Issues Involved:

1. Treatment of Foreign Exchange Loss
2. Selection of Comparable Companies
3. Inclusion of Specific Companies as Comparables
4. Grant of Tax Deducted at Source (TDS) Credit
5. Levy of Interest under Section 234A

Detailed Analysis:

1. Treatment of Foreign Exchange Loss:

The assessee contended that the foreign exchange loss amounting to Rs. 1,17,88,220 should be considered as non-operating in nature while computing the net margin under the Transactional Net Margin Method (TNMM). The Transfer Pricing Officer (TPO) and the Assessing Officer (AO) considered the foreign exchange loss as operating expense, following precedents like SAP Labs India (P) Ltd. and Four Soft Ltd. The DRP confirmed this view. The Tribunal, following decisions in cases like Westfalia Separator India P. Ltd. and Four Soft Ltd., upheld the treatment of foreign exchange loss as part of the operating income, rejecting the assessee's ground.

2. Selection of Comparable Companies:

The assessee objected to the inclusion of TCS e-Serve International Ltd., TCS e-Serve Ltd., and Cosmic Global Limited as comparables. The Tribunal noted that Crossdomain Solutions P. Ltd. was previously accepted as comparable in the assessee's own case for an earlier year. Therefore, the Tribunal upheld the inclusion of Crossdomain Solutions P. Ltd. as comparable.

Cosmic Global Limited:
The assessee argued that Cosmic Global Limited's major revenue was from translation charges, not comparable to the assessee's business. The Tribunal, referencing its previous decision for A.Y. 2009-10, agreed with the assessee and directed the exclusion of Cosmic Global Limited from the list of comparables.

TCS e-Serve International Ltd. and TCS e-Serve Ltd.:
The Tribunal found that TCS e-Serve International Ltd. experienced an exceptional circumstance due to its acquisition of Citi group's BPO arm, influencing its financials. Thus, it directed the exclusion of TCS e-Serve International Ltd. from the comparables. For TCS e-Serve Ltd., the Tribunal noted its brand value, intangibles, and significantly higher turnover compared to the assessee, following the precedent set by the Delhi High Court in CIT vs. Agnity India Technologies P. Ltd. Therefore, it directed the exclusion of TCS e-Serve Ltd. from the comparables.

3. Inclusion of Specific Companies as Comparables:

The assessee sought the inclusion of Accentia BPO Services Ltd. and R-Systems International Ltd. The Tribunal did not adjudicate this issue, as the exclusion of the challenged companies resulted in the assessee's margin being within the acceptable range of the comparables' margin.

4. Grant of Tax Deducted at Source (TDS) Credit:

The assessee contended that the AO granted TDS credit of Rs. 10,550,734 instead of Rs. 11,464,704 claimed. The Tribunal remitted the issue to the AO for verification and appropriate relief.

5. Levy of Interest under Section 234A:

The assessee argued against the levy of interest under Section 234A, citing an extension of the due date for filing the return. The Tribunal remitted this issue to the AO for verification and relief as per the law.

Revenue's Appeal:

The Revenue appealed against the exclusion of Infosys BPO Ltd., Eclerx Services Ltd., and Accentia Technologies Ltd. from the comparables. The Tribunal upheld the DRP's decision to exclude these companies, referencing the assessee's own case for A.Y. 2009-10 and the presence of exceptional circumstances affecting the financials of these companies.

Conclusion:

The appeal of the Revenue was dismissed, and the appeal of the Assessee was partly allowed for statistical purposes. The Tribunal directed the AO/TPO to exclude Cosmic Global Limited, TCS e-Serve International Ltd., and TCS e-Serve Ltd. from the list of comparables and remitted the issues of TDS credit and interest under Section 234A for verification.

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