Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (2) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (2) TMI 575 - ITAT DELHITP Adjustment - Comparable selection - functional dissimilarity - HELD THAT:- Assessee is into rendering Information Technology Enabled Services (ITES) related to IP administration/renewal and data management services to its group companies including renewal support services, proof reading support, customer support services etc.. The taxpayer functions as a captive off-shore centre in India and supports its Associated Enterprises (AEs) in servicing customer contracts, thus companies functinally dissimilar with that of assessee need to be deselected from list of comparability. ECLERX SERVICES LIMITED (ECLERX) - Functional profile of Eclerx shows that it is a Knowledge Process Outsourcing (KPO) company and is providing domain specific reengineering expertise in partnership with financial services firms to increase control and execute ongoing functions.Thus is functionally dissimilar; that it is also outsourcing substantial amounts of work to outsider and that Eclerx has unreliable data. TCS E-SERVE LIMITED (TCS E-SERVE) - Keeping in view the functional dissimilarity, related party transactions, high turnover and payment for brand fee to Tata and abnormal profitability trend discussed in the preceding paras, we are of the considered view that TCS E-Serve is not a suitable comparable vis-à-vis the taxpayer who is a BPO/ITES service provider, hence ordered to be excluded. EXCEL INFOWAYS LTD. (EXCEL) - Excel has been rejected by the Tribunal in taxpayer's own case of earlier years. So, in these circumstances, we are of the considered view that Excel is not a suitable comparable vis-à-vis the taxpayer as it fails employee cost/net sales ratio filter applied by the TPO and segmental financials are not available, which is into new infrastructure activities, real estate, etc.. So, we order to exclude Excel from the final set of comparables. BNR UDYOG LTD. (BNR) - It is engaged in medical transcription and medical coding which is different from the taxpayer who is a routine ITES service provider working on cost plus mark-up business model. So, we are of the considered view that since BNR fails RPT filter of 25% applied by the TPO himself, having super normal growth, having functional dissimilarity vis-à-vis taxpayer is not a suitable comparable, hence ordered to be excluded. Treating foreign exchange loss as a non-operating item - taxpayer invoices its AEs for its services in US Dollars and bears foreign exchange risk qua movement in the exchange rate between US Dollar and INR - HELD THAT:- When foreign exchange loss is to form part of the total base of the taxpayer for the purpose of charging a mark up to its AEs as it drives income from its overseas AEs and it being a cost plus entity, the taxpayer earns foreign exchange loss incurred if any, foreign exchange fluctuation is operating in nature in order to compute margins, hence ld. DRP/TPO/AO has erred in treating foreign exchange loss as non-operating item. So, we direct to treat foreign exchange loss as operating in nature, hence ground no. 8 is determined in favour of the taxpayer.
|