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2020 (9) TMI 1 - AT - Income TaxTP Adjustment - comparable selection - TPO re-characterized the business of the assessee and held the assessee to be a KPO service provider - HELD THAT - We do not agree with the act of re-characterization of the assessee to be a KPO by the TPO in view of the fact that Hon ble Delhi High Court in the case of Rampgreen Solutions P Ltd 2015 (8) TMI 931 - DELHI HIGH COURT has observed that the expression knowledge process outsourcing indicates the involvement of domain knowledge in providing ITeS. Typically, knowledge process outsourcing includes involvement of advance skills; the services provided may include analytical services, market research, legal research, engineering and design services, intellectual management, etc. We further find that Co-ordinate Bench of the Tribunal in assessee s own case for A.Y. 2010-11 has held the characterization of the nature of service rendered by the assessee to be high-end ITES services . Assessee is engaged in providing Information Technology Enabled Services (ITES) to its Associated Enterprises (AEs) and is a subsidiary of Smart Cube Ltd., UK. thus companies functionally dissimilar with that of assessee need to be deselected from final list. Computing of operating margins - HELD THAT - We find that in the case of Fiserv India Pvt. Ltd. . 2016 (1) TMI 1276 - DELHI HIGH COURT after considering that various decisions cited in the order has held the foreign exchange gain/loss to be an operating item and therefore could not be excluded from the computation of the operating margins. - we direct the TPO/ AO to consider foreign fluctuation income to be operating in nature while working out the profit margin of the assessee. Sundry balances written back as part of operating income - HELD THAT - We find that the Co-ordinate Bench of the Tribunal in the case of Suessen Asia Pvt. Ltd. 2017 (10) TMI 1440 - ITAT PUNE after relying on the various decisions cited in the order, has held that the sundry balances written back to the part of operational item. Before us, Revenue has not pointed out any contrary binding decision in its support. Further, Revenue has also not placed any material to demonstrate that the liabilities written back pertain to capital expenditure. We therefore hold that the income arising out of sundry balances written back needs to be considered an operating item. The AO/TOP is therefore directed to consider the same as part of operating income while working out the margins of the Assessee. G rant the adjustment on account of idle capacity - We thus direct the AO/TPO to compute the Arms Length price of the international transactions entered into by the Assessee with its AEs keeping in view the observations made by us in the preceding paragraphs. Thus the grounds of assessee are partly allowed. Deduction u/s 10A/10B - claim of deduction u/s 10B was denied to the assessee and alternate claim of deduction u/s 10A was also not allowed - HELD THAT - Since the issue involved in the year under appeal is identical to that of AY 2010-11 2018 (4) TMI 1621 - ITAT DELHI we therefore for similar reasons and similar directions restore the issue back to the file of the AO to allow the claim of deduction u/s 10A after considering the submissions of the assessee and in accordance with law.
Issues Involved:
1. Transfer Pricing Adjustment 2. Corporate Tax Addition under Section 10B 3. Levying of Interest under Section 234C Issue-wise Detailed Analysis: Transfer Pricing Adjustment: The primary issue in this case revolves around the adjustment of ?5,52,01,139 to the arm's length price (ALP) of international transactions related to Information Technology Enabled Services (ITES) provided by the assessee to its Associated Enterprises (AEs). The Transfer Pricing Officer (TPO) re-characterized the assessee's business as Knowledge Processing Outsourcing (KPO) instead of ITES, leading to the selection of different comparable companies and the consequent adjustment. The Tribunal found that the assessee's activities were routine ITES services, involving data processing and communication of vendor details to its AEs. The Tribunal disagreed with the TPO's re-characterization, citing the Delhi High Court's decision in Rampgreen Solutions P. Ltd., which distinguished between KPO and ITES services. The Tribunal also noted consistency in previous assessments where the assessee was characterized as an ITES provider. Regarding the computation of operating margins, the Tribunal directed the TPO to include foreign exchange fluctuation, miscellaneous income, and sundry balances written back as operating income, following precedents such as Fiserv India Pvt. Ltd. and Suessen Asia Pvt. Ltd. The Tribunal excluded certain companies (Accentia Technologies Ltd., Eclerx Services Ltd., ICRA Techno Analytics Ltd., Infosys BPO Ltd., and Acropetal Technologies Ltd.) from the list of comparables due to functional dissimilarity, high brand value, and lack of segmental data. However, it upheld TCS E-Serve Ltd. as a valid comparable, considering the Tribunal's previous decision in the assessee's own case for AY 2010-11. The Tribunal also directed the TPO to grant an adjustment for idle capacity, following its decision in the assessee's case for AY 2009-10. Corporate Tax Addition under Section 10B: The assessee's claim for deduction under Section 10B was denied by the Assessing Officer (AO) on the grounds that the approval was obtained from the Software Technology Park of India (STPI) and not from the Board appointed under Section 14 of the Industrial Development and Regulation Act, 1951. The AO also denied the alternative claim for deduction under Section 10A. The Tribunal restored the matter to the AO for examining the alternative claim under Section 10A, following its decision in the assessee's own case for AY 2010-11. The Tribunal directed the AO to allow the claim after considering the assessee's submissions and in accordance with the law, ensuring adequate opportunity for the assessee to be heard. Levying of Interest under Section 234C: The Tribunal directed the AO to charge interest under Section 234C based on the returned income and not the assessed income, in accordance with the law. Conclusion: The appeal was partly allowed, with directions to the AO/TPO to recompute the ALP and consider the alternative claim under Section 10A, ensuring consistency with previous assessments and judicial precedents. The Tribunal emphasized the importance of uniformity and consistency in tax matters, especially when the facts and circumstances remain identical across different assessment years.
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