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TMI Blog2018 (5) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... loss incurred by assessee due to foreign exchange fluctuation as business loss. Insofar as providing adjustment in terms of foreign exchange fluctuation is concerned in respect of comparables, assessee is directed to provide necessary details in respect of any such risk assumed by such comparables that has been finally selected hereinabove for purpose of benchmarking international transaction. Ld.TPO shall then verify the same and accordingly grant risk adjustment while computing margin of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... r: Asessee filed its return of income declaring 'nil' income on 29/09/10 and claimed deduction under section 10 A of the Act. Book profit declared by assessee was of ₹ 47,38,771/-under section 115 JB of the Act. The return was processed under section 143(1) and upon selection for scrutiny, statutory notices were issued to assessee in response to which Representatives of the assessee attended the assessment proceedings and filed details as called for. 2.1. Ld. A.O. observed that assessee is engaged in the business of providing various types of data as well as Information Technology Enabled Services (ITES) to its Associate being Keystroke Pro Ltd. U.K. It was observed that during the year under consideration assessee undertook international transaction to the tune of ₹ 5,23,06,598/-with its Associated Enterprise (AE). Ld. AO accordingly referred the matter to Ld. Transfer Pricing Officer (Ld.TPO) for determining the arm's length price of the international transaction entered into by assessee with its AE. 2.2. Ld.TPO accordingly on receipt of information, called for various details from assessee. It was observed that assessee was a subsidiary Company of Keystroke Pro Lt ..... 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F.Y. 2009 - 10, KSPL provided transcription and data processing services to its clients based out of UK and US. • KSPL functions comprised mainly of identification of potential clients, conducting sales & marketing activities, promoting & procuring business, arranging for funding as required for business, negotiating terms with clients, collecting payments from clients, project management, managing client relationships, preparing design work flow systems & reporting in response to specific client needs, confirming to quality standards as agreed with clients and taking instructions & feedback from clients. • In order to provide services to clients, KSPL has taken certain services from KSPIPL and for such purposes, it provides technical expertise, assistance, advice to KSPIPL to carry on its operations in India in such a manner so as to be able to provide KSPL with necessary services as sought. • Apart from the foregoing assistance rendered to KSPIPL, KSPL also provides KSPIPL with: - Source documentation necessary to undertake required work like providing digital voice files to enable KSPIPL to convert it into written documents. - Technical and editoria ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are contracted directly and therefore AE is solely responsible for any liability arising out of customer contracts. HR management risk arises on account of high staff turnover. The staff engaged by assessee needs to be extensively trained with the help and guidance of AE. In order to retain trained staff, additional costs are required to be borne in the form of higher salaries etc. which are passed on by assessee to AE by way of charging them on actual cost plus margin basis. Hence all HR management risks are entirely borne by AE only. 4. Assessee raises invoice on AE in GBP and receive payment in GBP, which is then converted to INR. Hence assessee assumes such foreign exchange fluctuation risk when GBP is converted into INR but such risk is mitigated/passed onto AE because fees discharged by assessee to its AE on the basis of profit margin (which varies from 5% to 15%) on all actual direct and indirect cost incurred by assessee (including loss incurred due to changes/fluctuation in foreign exchange rates). Hence foreign exchange fluctuation risk is entirely borne by AE. 5. Based on the above functions, assessee used TNMM as the most appropriate method and OP/TC as PLI. Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of comparables and adjustment that has been made of ₹ 76,57,655/- being difference in margin of comparables finally selected by Ld TPO vis-a-vis that of the margin computed by assessee. 9.1. Ld.Counsel objects for inclusion of the following comparables: 1. E4 Healthcare Business Services Pvt.Ltd 2. Jindal Intellicom Pvt.Ltd 3. ICRA Techno Analytics Ltd., 4. Cosmic Global Ltd. 5. Infosys BPO Ltd. 9.2. Ld.Counsel placed reliance upon the decision of : * Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd vs. CIT reported in 377 ITR 533; * decision of Coordinate Bench of Bangalore Tribunal in DCIT vs Goldman Sachs Services Pvt.Ltd., reported in 82 Taxmann.com 380, Wherein it has been held that company engaged in providing highend services involving specialized knowledge and domain expertise should not be regarded as comparable to an assessee rendering IT enabled services to its AE which could be categorised as a low end BPO. 9.3. We shall consider each of the comparables by comparing it with the functions, assets and risks assumed by these comparables vis-a-vis that of assessee. (a ) E4 Healthcare Business Services Pvt. Ltd Ld. Counsel object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment and consultancy services, engineering services, Web development and hosting services. Further it is also observed that segmental information in respect of each of these services are not available and therefore it is not possible to segregate income earned by this company under each segment. It is also observed that this company holds intangible asset in the form of software whereas in the case of assessee any intangibles that may be developed during the process of rendering services to its AE are owned by AE. We accordingly hold this comparable to be excluded from final list. (d) Cosmic Global Ltd., This company has been held to be not comparable with that of assessee. It has been submitted by Ld.Counsel that this company assumes high-risk services and revenue earned by this company also includes translation charges which are more knowledge-based in nature. On the contrary Ld. CIT DR submitted that this company was originally included by assessee in TP report which has now been agitated by Ld.Counsel as not comparable. He placed reference to the Schedule 7 of accounts of this company which is at page 194 of paper book volume-1. It has been submitted that revenues from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcluded from list of comparables. 10. On the basis of the above analysis, we direct Ld. TPO to consider/exclude comparables as directed above. We also direct ld.TPO to consider working capital adjustments between assessee as well as companies selected as comparables on the basis of the risk assumed. 11. Accordingly ground No. 1 raised by assessee stands partly allowed. 12. Ground No.3 This ground has been raised by assessee against disallowance made by Ld. TPO of ₹ 4,44,536/-on account of foreign exchange fluctuation by adjusting the same against the interest income of ₹ 1,43,641/-, shown under the head 'income from other sources'. Ld.Counsel submitted that TPO has given different treatment for the foreign exchange fluctuation loss as well as gain earned by assessee. It has been submitted that foreign exchange gain earned by assessee on the revenue earned from services rendered. It was submitted that assessee had earned loss of ₹ 4,44,536/-on account of conversion of funds from EEFC account to INR account. It was submitted by Ld.Counsel that if such funds were directly kept in rupee account, there would be no further gain or loss on account of foreign exchan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under consideration from export proceeds have been listed. It is observed that loss as well as gain has been earned by assessee from its export proceeds being its business income. 12.4. On one hand assessee projects itself to be a risk-free company wherein all the direct, indirect costs incurred by assessee including foreign exchange fluctuations are included in the cost remunerated by its AE. On the other hand assessee is considering loss earned due to foreign exchange fluctuation on conversion of its export revenues into INR as income from other sources. In our considered opinion assessee cannot blow hot and cold at the same time. We are therefore of the considered opinion that Ld. TPO was right in considering the loss incurred by assessee due to foreign exchange fluctuation as business loss. 12.5. There is no doubt that foreign exchange gain/loss has to be considered as part of operating income for purposes of computing margin of assessee. Insofar as providing adjustment in terms of foreign exchange fluctuation is concerned in respect of comparables, assessee is directed to provide necessary details in respect of any such risk assumed by such comparables that has been finally ..... X X X X Extracts X X X X X X X X Extracts X X X X
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