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2022 (12) TMI 417 - AT - Income TaxTP Adjustment - treatment of foreign exchange fluctuation gain as operating income - Safe Harbour Rules - TPO while rejecting the foreign exchange gain from operating income has relied upon the Safe Harbour Rules - HELD THAT - As decided in B.C. MANAGEMENT SERVICES PVT. LTD. 2017 (12) TMI 255 - DELHI HIGH COURT the issue is covered in favour of the assessee and the Safe Harbour Rule referred by the TPO are not applicable in the current assessment year. Hence we uphold the order of ld. CIT (A). Rejecting the comparable, Infosys BPO Ltd. - Infosys BPO Ltd. on similar grounds has been excluded in other decisions in BT e-Serv (India) (P.) Ltd. 2018 (6) TMI 1639 - ITAT DELHI and Baxter India (P.) Ltd. 2017 (8) TMI 1557 - ITAT DELHI - Upon hearing both the parties and perused the record, we find that in view of the aforesaid decision of the ITAT, the issue stands covered in favour of the assessee. Companies functionally dissimilar with that of assessee a business process outsourcing company that provides call center services including customer care, customer retention, first-party receivables management, third-party collections and revenue recovery services to large and mid-sized companies need to be deleted as comparable.
Issues Involved:
1. Treatment of foreign exchange gain/loss as operating income. 2. Rejection of comparable companies: Infosys BPO Ltd., e4e Healthcare Services, and TCS E-Serve. 3. Remanding the issue of computation of operating margin of Acropetal Technologies Limited. 4. Non-granting of economic adjustments for differences in functional and risk profiles. Detailed Analysis: 1. Treatment of Foreign Exchange Gain/Loss as Operating Income: The primary issue was whether the foreign exchange gain should be treated as operating income. The TPO excluded the foreign exchange gain from operating income relying on the Safe Harbour Rules. However, the assessee contended that these rules, introduced in 2013, were not applicable for the assessment year 2012-13. The CIT (A) supported the assessee's contention, referencing judgments from the Hon'ble Delhi High Court in cases like Ameriprise India Pvt Ltd., Cashedge India Pvt Ltd., and Fiserv India Pvt Ltd., which held that foreign exchange gains related to trading items from international transactions should not be treated as non-operating. The Tribunal upheld the CIT (A)'s decision, confirming that the issue was covered in favor of the assessee and that the Safe Harbour Rules were not applicable for the assessment year in question. 2. Rejection of Comparable Companies: - Infosys BPO Ltd.: The CIT (A) rejected Infosys BPO Ltd. as a comparable, agreeing with the assessee's argument that the company was functionally different, providing high-end integrated services, having substantially higher turnover, and commanding premium prices due to its brand. The Tribunal upheld this decision, citing previous ITAT decisions where Infosys BPO Ltd. was excluded on similar grounds. - e4e Healthcare Services: The CIT (A) also excluded e4e Healthcare Services as a comparable, noting that the company was engaged in healthcare outsourcing services and lacked segmental information. This decision was supported by ITAT precedents, and the Tribunal upheld the CIT (A)'s exclusion of this company as a comparable. - TCS E-Serve: The CIT (A) excluded TCS E-Serve, noting its engagement in high-end ITES, significantly higher operating revenue, brand payments, and ownership of intangibles. The Tribunal upheld this exclusion, referencing ITAT decisions where TCS E-Serve was found to be functionally dissimilar to the assessee. 3. Remanding the Issue of Computation of Operating Margin of Acropetal Technologies Limited: The CIT (A) remanded the issue of computing the operating margin of Acropetal Technologies Limited to the AO/TPO for re-evaluation. The Tribunal did not specifically address this remand in detail, as the primary focus was on the comparables and foreign exchange gain issues. 4. Non-Granting of Economic Adjustments: The assessee argued that the CIT (A) erred by not granting economic adjustments for differences in functional and risk profiles between the assessee and comparable companies. However, since the Tribunal upheld the CIT (A)'s decisions on the primary issues, the cross-objections raised by the assessee were deemed academic and dismissed as infructuous. Conclusion: The Tribunal upheld the CIT (A)'s decisions on all major issues, confirming the treatment of foreign exchange gain as operating income and the exclusion of Infosys BPO Ltd., e4e Healthcare Services, and TCS E-Serve as comparables. The cross-objections by the assessee were dismissed as infructuous. The appeal by the Revenue was dismissed in its entirety.
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