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TMI Blog2014 (10) TMI 493X X X X Extracts X X X X X X X X Extracts X X X X ..... ization services involve taking a product and making it linguistically and culturally appropriate to the target locale. Content development includes updating and management of the clients‟ localized software and web content. 3.1 The assessee has benchmarked information technology/software development (IT) services and localization [low end IT enabled services (ITES)] rendered by it to its A.E. Lionbridge Maurities, on an aggregated basis. These services include e-learning content development, user support, and localization & application support services. The assessee adopted the following methodology for determining the ALP of these transactions: i. The assessee has adopted TNMM. ii. Profit level indicator (PLI) is the operating profit to operating cost(OP/OC) iii. 27 companies were identified as comparables. In the TP report, the mean/average PLI has been determined by taking data of FY 2005-06 and 2006-07 and computing the two year weighted average. The assessee in its TP report has submitted that its PLI for information technology/software development (IT) services localization & application support services is 18.18%, as against the arithmetic mean of 27 comparable o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP and the DRP deleted further two companies from the set of comparables identified by TPO. As a consequence the revised margin was computed at 30.10%. Accordingly DRP recomputed adjustment in respect of International Transactions by taking 15 companies at Rs. 10,39,54,664/- in place of adjustment proposed by TPO at Rs. 16,83,86,191/- 3.6 The TPO/AO has also declined claim of deduction u/s.10A on the disallowance made u/s.10(10C). The AO/TPO also disallowed deduction in respect of foreign exchange loss amounting to Rs. 2.98 crores. The AO/TPO has also excluded expenditure incurred in foreign currency amounting to Rs. 30.38 crores while determining the export turn over for the purpose of Section 10A of the Act. By the impugned order DRP confirmed the action the TPO. 4. Against the above order of DRP, the assessee is in further appeal before us having following grounds :- Based on the facts and circumstances of the case, the Appellant respectfully submits that the Dispute Resolution Panel (,DRP'), the learned Assessing Officer ('AO') and the learned Transfer Pricing Officer (TPO') erred on the following grounds while determining the total income of the Appellant at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es; (i) arriving at an arm's length margin of 30.10 percent for the IT and ITES segment of the Appellant; (j) ignoring the provisions of rule 10B(4) of the Income-tax Rules, 1962 (Rules'), which authorizes usage of multiple year data of comparable companies for the purpose of determination of the arm's length price as defined under section 92F of the Act; (k) not making a further downward margin adjustment to consider working capital risk differentials between the Appellant and the comparable companies; (l) applying the provision of Chapter X of the Act, although the Appellant is availing the relief under section 10A of the Act; in doing so the TPO has erred in not considering the ratio of the decision in the case of Philips Software Center Private Limited (119 TTJ 721) The DRP has erred in law and in facts in disposing off the objections raised by the Appellant in respect of the above adjustment proposed by the TPO The AO has erred in law and in facts in giving effect to the adjustment to ALP proposed by the TPO and the directions given by the DRP in respect of the aforesaid adjustment to the ALP, which are bad in law. Corporate-tax grounds On the facts and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the AO erred in excluding expenditure incurred on foreign currency amounting to Rs. 30,38,41,097, while determining the export turnover for the purpose of Section 10A of the Act. Re-computation of deduction for the purposes of Section 10A and levy of Interest g. AO erred in re-computation of deduction under Section 10A of the Act, by not taking into account the 'profit of the undertaking' as laid down under the provisions of the Act. h. On the facts and in the circumstances of the case and in law, the AO erred in levying interest under section 234B and 234D of the Act." 5. Shri Ajit Kumar Jain, CA appeared on behalf of the assessee and contended that assessee is engaged in providing low end back office support services which was also rendered to its AE. However, while selecting comparables, the TPO/DRP have ignored the functional profile and wrongly taken Mold-Tek Technologies Limited, Eclerx Services Ltd. and Acropetal Technologies Ltd. as comparables. He invited our attention to page 430-468 of Paper Book in support of contention that Mold-Tek Technologies Limited is engaged in providing KPO services in the field of engineering. Our attention was also invited to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owance of foreign exchange loss, learned AR place reliance on the decision of Hon‟ble Supreme Court in the case of CIT Vs. Woodward Governor India (P) Ltd., 312 ITR 254 in support of the proposition that loss suffered by the assessee on account of fluctuation in the rate of foreign exchange as on the date of balancesheet was an item of expenditure u/s.37(1) notwithstanding that the liability has not been discharged in the year in which the fluctuation in the rate of foreign exchange occurred. 5.4. On the other hand Ld. CIT DR Mrs. S. Padmaja contended that assessee‟s objection that some of the companies provide knowledge processing services (KPO) and should therefore be taken as functionally different is not accepted as the benchmarking has been done using the NCP margin as the PLI. Besides, from the perusal of the functions narrated in the Transfer Price Study Report filed by the assessee it is seen it has engaged 1200 + highly skilled professionals. Thus it is clear that the assessee cannot be characterized as a low end service provider and, in fact, it is specifically high end in certain categories. Even if some of the activities of the assessee may be of lower end, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee company being a low end back office support service provider. We found that Mold-Tek Technologies Limited (Mold-Tek) provides KPO services in the field of engineering. We also found that Mold-Tek has demerged its subsidiary Mold-Tek Plastics Limited w.e.f. April, 2007 which is an extra-ordinary event. Furthermore, since the Mold-Tek is into providing KPO engineering services, hence, cannot be functionally compared with the assessee company which is engaged in the provision of back office operations. For this purpose, reliance may be placed on the decision of Special Bench in the case of Maersk Global Centres (India) Private Limited, ITA No.7466/Mum/2012. Accordingly, we do not find any justification in the order of DRP for not excluding Mold-Tek as comparable which is a Knowledge Processing Company. Thus the DRP was not justified in the comparing the same with the assessee which is functionally different insofar as assessee is engaged in providing low end back office support services. 8. In respect of comparable Eclerx Services Limited, as included by TPO, we found that this company is a knowledge process outsourcing (KPO) engaged in providing data analysis and data process s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground raised by the assessee regarding corporate tax, we found that in the course of assessment the AO/TPO has proposed disallowance u/s.40a(v) in respect of tax borne by employer which was claimed as exempt by the employee u/s.10(10CC) of the Act. However, deduction u/s 10A was not allowed on the revised business profit so enhanced because of disallowance u/s 40a(v). The issue under consideration is squarely covered by the decision of Hon‟ble Bombay High Court in the case of Gem Plus (supra). Accordingly, we direct the AO to allow deduction u/s.10A on the enhanced business profit of the assessee i.e profit to be increased by the amount of disallowance made u/s.40a(v) since the assessee has no income other than the income eligible for deduction u/s.10A of the Act. 10.1 In the draft assessment order, the AO has proposed disallowance of foreign exchange loss on the ground that loss is only contingent and not allowable u/s.37(1). The contention of the assessee before us was that relying on the decision of Hon‟ble Supreme Court in the case of Woodward Governor (I) Pvt. Ltd. (supra), same should be allowed or in alternative the profit eligible for deduction tax u/s.10 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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