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TMI Blog2015 (8) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... f the relevant segment of this company in the list of comparables. The TPO is directed to include the operating profit/operating costs of the ITES segment of this company in the list of comparables, after due verification of the necessary figures for the purposes of determination of the operating profit margin etc. Accentia Technologies Ltd. - apart from rendering IT enabled services, this company is also having software products and the revenue from both these streams has been merged. As the segmental figures in relation to the business of rendering ITES are not available and the TPO has taken its entity level figures, it ceases to be comparable. The obvious reason for the exclusion of this company is the pooling of income from software products in its overall profitability, which cannot be separated with precision, thereby rendering it incomparable. We, therefore, direct to remove this company from the list of comparables. e- Clerx Services Ltd.is a Knowledge Process Outsourcing (KPO) company providing data analytics and data process solutions to global clients. This company provides end to end support through trade life cycle including trade confirmations and settlements e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al adjustment allowed as directed by DRP - Held that:- TP adjustment on account of interest on delayed realization of invoice value has nothing to do with the closing or opening values. It depends on the period of realization on transaction to transaction basis. To put it differently, suppose an invoice is raised on 1st May; period allowed for realization is two months; and the invoice is actually realized on 31st December. Notwithstanding the fact that interest on such late realization would become chargeable for a period of 6 months (from 1st July to 31st December), but the amount of invoice will not be receivable as at the end of the financial year on 31st March. As such, this receivable would not have an impact on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months. We, therefore, reject the reasoning given by the DRP in deleting the addition. However, in view of the fact that all the invoices were realized within the maximum period of 60 days allowed as per the Agreement, we hold that the charging of interest on receivables is not sustainable on the extant facts. - ITA No.2010 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed back office services was at arm s length price (ALP). On a reference made by the AO for determining the ALP of the international transactions, the TPO treated only three companies as comparable from the assessee s list. He added four new companies, thereby making a total of seven companies, considered comparable, as under :- S.No. Name OP/TC (%) 1. Vishal Information Technology Limited 36.93 2. Cosmic Global Ltd. 50.7 3. Informed Technologies India Ltd. 23.16 4. Accentia 52 5. Crossdomain Solution P. Ltd. 29.4 6. Genesys International Corpn. Ltd. 84.12 7. Eclerx 50.3 Average 46.66 4. The assessee s point of view in using multiple-year data of comparables, was rejected. On the basis of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of call centres and back office operations of certain companies, outsourced by Ameriprise US. The assessee is required to convert the data into presentable form to enable Ameriprise, US to evaluate the performance of its outsourced call centres and back office operations. Next category is `Procurement services . Under this category, the assessee conducts basic analytics for better understanding of the `spend and determines how to optimize such spend across commodities. The next broader category is `Human resources shared services under which the assessee helps manage some human resources processes for the US employees including processing payroll, calculating benefits, managing leave of absence, etc. 8. A narration of the above nature of services depicts that the conceptualization of the services is primarily done by Ameriprise US which collects data and sends the same in raw form to the assessee or the other relevant data is procured by the assessee directly from the sources referred by the Ameriprise US. The assessee compiles such raw data in desired format/sequence and undertakes processes, such as, merging of data, sequencing, etc. This is an in-house function performed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also are essentially in the nature of collection of data in one form or the other and then, sending reports to Ameriprise US. In other words, the assessee is involved in providing back office support services to Ameriprise US without any direct involvement in the conduct of business of Ameriprise US. With the above background of the assessee s nature of work done for its AE, which is primarily in the nature of rendering IT enabled services, which position has also been admitted by the TPO as well, we proceed to determine the comparability or otherwise of the companies challenged before us. i) Cosmic Global Limited (Seg.) 11.1. This company was initially included by the assessee in its list of comparables. However, during the course of proceedings before the TPO, it was urged that the same was not comparable as it was engaged in the business of providing services and solutions in the nature of Translation, localization, voiceovers; Accounts processing; and Transcription. The TPO refused to accept the assessee s contention and treated the same as comparable. No relief was allowed by the Dispute Resolution Panel (DRP). 11.2. After considering the rival submissions and perusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon ble jurisdictional High Court in the case of ChrysCapital Investment Advisors (I) Pvt. Ltd., it becomes clear that the view taken in the case of Mercer (supra), on the exclusion of Cosmic Global on the consideration of low turnover, can no more be treated as a precedent. Law is not a static phenomenon. It keeps on evolving over a period with the arrival of the judgments of the higher judicial forums, till the matter is set to rest by the Hon ble Supreme Court. A particular view taken by the tribunal, becoming contrary to the later view of the jurisdictional High Court on the same issue, cannot be impressed for adoption. Coming back to the facts of the instant case, we find that the functional comparability of the Accounts BPO segment of Cosmic Global has been accepted by the ld. AR. In that view of the matter and respectfully following the judgment of the Hon ble High Court in the case of ChrysCapital Investment Advisors (I) Pvt. Ltd. (supra), we hold that Cosmic Global Ltd. (Seg.) cannot be excluded from the list of comparables. ii) CG-VAK Software and Exports Ltd. (Seg.) 12.1. The assessee included the segmental figures of this company in the list of comparables. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arated with precision, thereby rendering it incomparable. We, therefore, direct to remove this company from the list of comparables. iv) e- Clerx Services Ltd. 14.1. The TPO treated this company as comparable and the assessee s objections about the functional dissimilarity were ignored. 14.2. After considering the rival submissions and perusing the relevant material on record, we find that it is a Knowledge Process Outsourcing (KPO) company providing data analytics and data process solutions to global clients. This company provides end to end support through trade life cycle including trade confirmations and settlements etc. It also provides sales and marketing support services to leading global manufacturing, retail, travel and leisure companies through its pricing and profitability services. From the above narration of the nature of business carried on by e-Clerx Services Ltd., it is manifest that the same being a KPO company, is quite different from the assessee, providing only IT enabled services to its AE. Apart from that, it is further observed that this company has significant intangibles which it uses in rendering KPO services, against which the assessee does not h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year ending of the above company was different, yet, the assessee was in a position to put forward the data of this company for the financial year 1.4.2008 to 31.3.2009 from their Annual reports only. It was so stated on the basis of the availability of the quarterly data from the Annual reports of this company, which could be adjusted for the financial year ending 31.3.2009. If the contention of the assessee is correct, that the relevant data for the concerned financial year can be deduced from the information available from its annual report, then, there can be no objection to its inclusion in the list of comparables with the adjusted data for the relevant financial year itself. Under such circumstances, we set aside the impugned order and remit the matter to the file of TPO/AO for examining this aspect of the matter. It is clarified that only if the assessee succeeds in providing the relevant data of this company for the concerned financial year on the basis of the information available from the Annual reports only, the TPO should include this company in the list of comparables by considering its OP/TC on the basis of the financial year ending 31.3.2009. If however, even though ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate fluctuation gain/loss arising from exports cannot be viewed differently from sale proceeds. 16.4. In the context of transfer pricing, the Bangalore Bench of the Tribunal in SAP Labs India Pvt. Ltd. Vs ACIT (2011) 44 SOT 156 (Bangalore) has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. Similar view has been taken in Trilogy E Business Software India (P) Ltd. Vs DCIT (2011) 47 SOT 45 (URO) (Bangalore). The Mumbai Bench of the Tribunal in S. Narendra Vs Addtl. CIT (2013) 32 taxman.com 196 has also laid down to this extent. In view of the foregoing discussion, we are of the considered opinion that the amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost, both of the assessee as well as comparables. We, therefore, hold that the AO was not justified in considering forex loss as non-operating cost as against the assessee s claim of operating cost. 17. With the above remarks, we set aside the impugned order and send the matter back to the file of TPO/AO for determining the ALP of the international transac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated 6.7.2015 passed by the Tribunal in the case of Techbooks International Pvt. Ltd. (supra), in which the transfer pricing adjustment on account of the delayed realization of invoices from AEs has been upheld. The ld. DR contended that the order in the case of Kusum Healthcare Pvt. Ltd. (supra), has been passed without considering the amendment to section 92B carried out by the Finance Act, 2012 with retrospective effect from 1.4.2002, which has been duly taken into account by the Tribunal in its later order in Techbooks International Pvt. Ltd. (supra). 21. After considering the rival submissions and perusing the relevant material on record, it is noticed as highlighted above, that the assessee argued before the TPO that interest on receivables is not an international transaction. At this stage, it would be apposite to note that the Finance Act, 2012 has inserted Explanation to section 92B with retrospective effect from 1.4.2002. Clause (i) of this Explanation, which is otherwise also for removal of doubts, gives meaning to the expression international transaction in an inclusive manner. Sub-clause (c) of clause (i) of this Explanation, which is relevant for our purpose, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other transaction having a bearing on the profits, income, losses or assets of such enterprises? 24. While answering the above question, the Hon ble High Court noticed that an amendment to section 92B has been carried out by the Finance Act, 2012 with retrospective effect from 1.4.2002. Setting aside the view taken by the Tribunal, the Hon ble High Court restored this issue to the file of the Tribunal for fresh decision in the light of the legislative amendment. 25. The foregoing discussion discloses that non-charging or undercharging of interest on the excess period of credit allowed to the AE for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. 26. Now, we come to the computation of the ALP of the international transaction of debt arising during the course of business. The TPO has calculated TP adjustment on account of interest on outstanding debts beyond a period of 30 days by not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justment is confined to the international transaction of rendering of services, whose ALP is separately determinable. On the other hand, the international transaction of interest receivable from its AEs for late realization of invoices beyond such stipulated period is a separate international transaction. Allowing working capital adjustment in the international transaction of rendering services can have no impact on the determination of ALP of the international transaction of interest on receivables from AEs beyond the stipulated period allowed as per the Agreement. The amendment made by the Finance Act, 2012 in terms of insertion of Explanation to section 92B with retrospective effect from 1.4.2002 by considering `any other debt arising during the course of business as a separate international transaction, impliedly disapproves the view canvassed by the DRP in obliterating the determination of the ALP of the separate international transaction of interest on allowing the working capital adjustment in the international transaction of rendering of services. In our considered opinion, both the transactions are separate and distinct from each other. Whereas the international transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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