2019 (8) TMI 1664 - AT - Income Tax

TP Adjustment - Comparability - functional dissimilarity - HELD THAT - Assessee provides backoffice support services to its AE.Assessee provides routine back and support services in the mortgage industry vertical. It is recorded in TP study that assessee is entrusted with job of calculating fees for various zones after taking into consideration specific regulations of particulars state and other para meters. Universal Print Systems Ltd. (segmental) (BPO) - This comparable is basically into sale of products and services unlike a captive service provider such as assessee, who works on cost plus basis, providing services only to its AE's. It is also observed that this comparable is basically providing BPO services from its Prepress units. none of the objections raised by the Assessee in this regard about lack of information about allied services performed by the pre-press BPO segment of this company and the break-up of the revenue from such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Infosys BPO Ltd. is functionally not comparable with captive service provider. Thus we direct this company to be excluded from the list of comparables. TCS e-Serve Ltd. company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information - we direct Ld. TPO to exclude this company from the list of comparables. BNR Udyog Ltd. (segmental) - Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical transcription - We have our reservation to consider medical transcription services to be one of KPO services. In our considered opinion medical transcription services is basically back-office services provided by graduates who are trained for short period of 6 months to one year. These are short crash courses undertaken by graduates who are trained to understand and speak English. There is no value addition in the services rendered by people in medical transcription. To our understanding, basically these people who carry out medical transcription services are trained to understand language spoken by doctors, outside India to whom medical reports of patience are sent for expert opinion. Medical transcriptionist simply reproduces opinion expressed by Doctor, which is then communicated to the patients. It is observed from annual report that this company has segmental information of medical transcription and revenue earned under this segment is ₹ 147.40 Lacs. It is also been observed that various other decisions by co-ordinate Benches of this tribunal has remanded this comparable back to Ld. TPO, for proper analysis and fresh consideration.We set aside this comparable back to Ld. TPO for considering it afresh. Needless to say that proper opportunity shall be granted to assessee as per law. Excel Infoways Ltd. (segmental) - This company for year under consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At this stage, we clarify that, we are not inclined to express our opinion regarding functional similarities/dissimilarity of this company with that of present assessee before us and the same is kept open to be considered in an appropriate case. We therefore agree with contention raised by assessee regarding this comparable not satisfying employee cost filter. We direct Ld. TPO to exclude this comparable from the final list. Informed Technologies India Ltd. - This comparable has been not disputed for functional dissimilarity by DRP. However, observation that segmental information are not available needs to be verified. We are therefore of considered opinion that, this comparable needs to be set-aside to Ld. TPO for verification afresh. Needless to say that assessee shall be granted proper opportunity as per law to represent its case. Interest on receivables outstanding in relation to transaction with AE - HELD THAT - This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. 2016 (7) TMI 760 - ITAT KOLKATA held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92B of the Act. We also perused decision relied upon by Ld. Counsel. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld. Counsel. Alternatively as argued that working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation. As relying on Orange Business Services India Solutions Pvt. Ltd. 2018 (2) TMI 1151 - ITAT DELHI we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO for deciding it in conformity with the above referred judgment. Needless to say, the assessee will be allowed a reasonable opportunity of being heard in such fresh proceedings.

Summary

Issues Involved:
1. Transfer Pricing Adjustment
2. Comparability Analysis
3. Interest on Receivables
4. Levying Interest under Sections 234B and 234C

Detailed Analysis:

1. Transfer Pricing Adjustment:
The primary issue was the transfer pricing adjustment proposed under Section 92CA of the Income-tax Act, 1961, concerning the provision of software development and IT-enabled services by the appellant. The Assessing Officer (AO), Transfer Pricing Officer (TPO), and CIT(A) were found to have erred in rejecting the TP documentation maintained by the appellant and in conducting a fresh comparability analysis by introducing various filters while determining the Arm's Length Price (ALP).

2. Comparability Analysis:
The appellant challenged the inclusion and exclusion of certain comparables in the ITeS segment. The TPO had rejected the appellant's comparability analysis and conducted a fresh one, leading to the following specific issues:

Comparables Sought to be Excluded:
- Universal Print Systems Ltd.: Excluded due to functional dissimilarity and insufficient company information. The Tribunal remanded this comparable to the TPO for fresh adjudication.
- Infosys BPO Ltd.: Excluded for functional incompatibility and the presence of significant intangibles. The Tribunal directed its exclusion based on prior decisions.
- TCS E-Serve Ltd.: Excluded due to functional dissimilarity, lack of segmental reporting, and significant brand-related expenses. The Tribunal directed its exclusion.
- BNR Udyog Ltd.: The Tribunal remanded this comparable to the TPO for fresh consideration, noting the need for proper analysis.
- Excel Infoways Ltd.: Excluded due to failing the employee cost filter and the presence of extraordinary events affecting its profit margin. The Tribunal directed its exclusion.

Comparables Sought for Inclusion:
- Informed Technologies India Ltd.: The Tribunal remanded this comparable to the TPO for verification of segmental information, noting that its functional similarity was not disputed.

3. Interest on Receivables:
The appellant contested the interest imputation on receivables outstanding from associated enterprises (AEs). The TPO had computed interest on outstanding receivables exceeding six months at 16.85%, proposing an adjustment. The appellant argued that the working capital adjustment already accounted for receivables and that interest should not be imputed separately. The Tribunal referred to various judicial precedents and remanded the issue to the AO/TPO for fresh consideration, emphasizing the need for proper inquiry into the impact of receivables on working capital.

4. Levying Interest under Sections 234B and 234C:
The appellant also contested the levying of interest under Sections 234B and 234C of the Act. The Tribunal noted that this issue was consequential in nature and did not require separate adjudication.

Conclusion:
The Tribunal allowed the appeal partly for statistical purposes, remanding several issues back to the TPO for fresh consideration and directing the exclusion of certain comparables based on established precedents. The decision emphasized the need for a detailed and accurate comparability analysis and the proper treatment of interest on receivables.