2019 (9) TMI 1486 - AT - Income Tax

TP Adjustment - Comparable selection - HELD THAT - Companies functionally dissimilar with that of assessee as engaged in the business of medical transcription and is a subsidiary of Acusis Holding Co. Ltd. British Virgin Islands which is a wholly subsidiary of Acusis LLC, USA and the company registered as a private company engaged in medical transcription services to Acusis LLC and is remunerated on cost 15% mark up need to be deselected from final list. Working Capital Adjustment and the Foreign Exchange Gain/Loss - HELD THAT - We found in the course of hearing, no details were filed in respect of Foreign Exchange Gain/Loss and the DRP where the assessee has failed to submit the details. As prayed by the ld. AR, we restore these disputed issues to the file of TPO with a direction to consider the claim of assessee and the assessee shall submit the details in respect of foreign exchange fluctuation. Similarly, the adjustment benefit of /- 5% was not considered by the TPO in his order and the same has to be allowed and we order accordingly.

Issues Involved:
1. Exclusion of comparables (Accentia Technologies Ltd. and ICRA Online Ltd.)
2. Inclusion of comparables (E4E Healthcare Business Services Pvt. Ltd., Cosmic Global Limited, Informed Technologies India Limited, Microgenetic Systems Limited, Caliber Point Business Solutions Limited, and R Systems International Limited)
3. Working Capital Adjustment and Foreign Exchange Gain/Loss

Detailed Analysis:

1. Exclusion of Comparables:
The first issue discussed was the exclusion of two comparables, Accentia Technologies Ltd. and ICRA Online Ltd., from the final list of comparables for determining the Arm's Length Price (ALP).

- Accentia Technologies Ltd.:
The Tribunal found that Accentia Technologies Ltd. was engaged in high-end services, including software production and SaaS models, which were not comparable to the low-end ITES services provided by the assessee. The Tribunal noted that Accentia Technologies Ltd. had significant intangible assets and was involved in knowledge processing outsourcing (KPO) rather than business process outsourcing (BPO). The Tribunal relied on previous decisions, including the case of EMS Software Services (India) Pvt. Ltd., to support the exclusion of Accentia Technologies Ltd. from the list of comparables.

- ICRA Online Ltd.:
The Tribunal found that ICRA Online Ltd. was engaged in high-end KPO services, which were functionally different from the routine BPO services provided by the assessee. The Tribunal noted that the TPO had incorrectly calculated the margin for ICRA Online Ltd. and that the company’s segmental information was not adequately detailed. The Tribunal relied on the decision in Sitel India Pvt. Ltd. Vs. DCIT to support the exclusion of ICRA Online Ltd. from the list of comparables.

2. Inclusion of Comparables:
The second issue involved the inclusion of six comparables proposed by the assessee.

- E4E Healthcare Business Services Pvt. Ltd.:
The Tribunal found that E4E Healthcare Business Services Pvt. Ltd. was functionally comparable to the assessee and should be included in the list of comparables. The Tribunal noted that the DRP had wrongly rejected this comparable due to inconsistencies in accounting for bad debts.

- Cosmic Global Limited:
The Tribunal found that Cosmic Global Limited was functionally comparable to the assessee, as it earned revenue from medical transcription, translation, and BPO services. The Tribunal noted that the DRP had wrongly rejected this comparable by assuming that translation charges were in the nature of outsourcing charges.

- Informed Technologies India Limited:
The Tribunal found that Informed Technologies India Limited was functionally comparable to the assessee, despite having higher rental income than operating income. The Tribunal noted that rental income was non-operating in nature and should not affect the comparability.

- Microgenetic Systems Limited:
The Tribunal found that Microgenetic Systems Limited was functionally comparable to the assessee, despite the TPO’s rejection due to non-availability of data and assumptions regarding outsourcing expenses.

- Caliber Point Business Solutions Limited and R Systems International Limited:
The Tribunal rejected the inclusion of these two comparables due to different financial year endings, despite being functionally comparable.

3. Working Capital Adjustment and Foreign Exchange Gain/Loss:
The third issue involved the working capital adjustment and foreign exchange gain/loss.

- Working Capital Adjustment:
The Tribunal found that the TPO had not considered the adjustment benefit of +/- 5% in his order. The Tribunal directed the TPO to allow this adjustment.

- Foreign Exchange Gain/Loss:
The Tribunal noted that the assessee had failed to submit details regarding foreign exchange fluctuation. The Tribunal restored the issue to the file of the TPO with a direction to consider the claim of the assessee upon submission of the required details.

Conclusion:
The Tribunal partly allowed the assessee’s appeal for statistical purposes, directing the TPO to exclude Accentia Technologies Ltd. and ICRA Online Ltd. from the list of comparables, include E4E Healthcare Business Services Pvt. Ltd., Cosmic Global Limited, Informed Technologies India Limited, and Microgenetic Systems Limited in the list of comparables, and consider the working capital adjustment and foreign exchange gain/loss upon submission of details by the assessee.

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