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TMI Blog2018 (11) TMI 1169X X X X Extracts X X X X X X X X Extracts X X X X ..... tuation as Operating income while determining Profit Level Indicator (PLI); ii. grant of working capital adjustment and iii. Dispute with inclusion and exclusion of the comparables. 02 The Assessee is a company engaged in the business of rendering IT enabled services ( ITES) in the nature of data management services (i.e. data management services, data collection, organization, validation, analysis and filtering of accounts) and call center services to its overseas associated enterprise ( AE) . The return of income was filed on 15.10.2010 declaring income of Rs. 8,046/-. The AO noted that assessee has entered into the international transaction with its associated enterprises, therefore, reference was made to the Ld. TPO-II(7), New Delhi to determine the arms length price u/s. 92CA(3). The TPO recorded the functional profile of the assessee at Page no. 2 to 4 of his order and then characterized the functions of the assessee as ITE services. The functions of the assessee are undisputedly as under:- "3. Functional Analysis As per the TP documentation submitted by the assessee, the functions performed by the assessee as part of data management services provided to AE are as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outside India and no payments are received in the Indian accounts or by Validor India. > Post payment, Vatidor India updates its records for collection of the doubtful debt/non-performing asset. > Trace/Issues: Any issues relating to bankruptcy, medical urgency of the debtor is fed into the system to update the account records. c) Infrastructure services Validor India renders certain IT infrastructure support services to HFO Ireland. The functions performed by this division essentially entail the following. 1. Technical support services 2. Troubleshooting of application services 3. Infrastructure set up and maintenance 4. Disaster recovery set up 5. Maintenance of databases Characterization Based on the facts as presented in the above analysis of functions performed, risks borne and assets used, the assessee company has been characterized as an Information Technology ("IT") enabled service provider with limited risk and assuming minimal risks. The assessee company has been made the tested enterprise for the purpose of comparability analysis. 03 The assessee has entered into the international transactions of provisions of IT enabled services of Rs. 15,33,09,068 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eriprise India (P) ltd in ITA No. 461/2016 vide order dated 19.10.2016 this issue is also decided in favour of the assessee. 07 The Ld. DR relied on Safe Harbour Rules and the orders of the lower authorities. 08 We have carefully considered the rival contentions and hold that foreign exchange gain by the assessee is on account of export of services. Therefore, the same is part of the operating income of the assessee. This issue has already been decided by the Hon'ble Delhi High Court in view of the decision cited by the Ld. AR which covers the issue in favour of the assessee. Further the safe harbor rules are like presumptive taxation and has been made applicable only from 18th September, 2013 and therefore, same are not applicable to the present assessment year. Even otherwise they are to be opted by the assessee and if not opted those are not binding on assessee. In view of this we allow ground no. 5 of the appeal of the assessee and direct the AO /TPO to consider the foreign exchange fluctuation gain as operating income for computing the PLI of the assessee. 09 The ground no. 6 of the appeal is with respect to not granting the working capital adjustment of the assessee. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lowing different accounting period, if the reliable and authentic data is available with respect to missing quarters . In the present case if the assessee submits reliable and authentic data of the relevant quarters to reconstruct the results of that comparable for the financial year similar to the accounting year of the assessee, then the same should be considered for comparability analysis. Accordingly, this comparable is directed to be included provided assessee submits the above information. 15 The next comparable was Accentia Technologies Ltd. contested by the assessee. This comparable has been selected by the TPO on fresh search. Before the TPO the assessee objected that the comparable is engaged in different segment and functionally not comparable. The Ld. TPO rejected the contention of the assessee and held that Accentia Technologies Ltd. that the Company has one segment of Healthcare Management and Receivable hence Segment reporting is not applicable. Hence, according to him it is comparable. The ld. DRP was also of the view that where assessee pointed out that assessee has undertaken the extraordinary activity of amalgamation during the year, held that the merger has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llection, data organization, data validation and filtering of accounts. In view of this, it cannot be said that Accential Technologies Pvt. Ltd. is performing any function, which is dissimilar to the assessee company. We have also perused the decision of the Hon'ble Delhi High Court in the case of Pr. CIT vs. Ameriprise India (P) Ltd. the main reasons for dismissing the appeal of the Revenue is that the order of the Tribunal dealeing with 03 comparables was not found reasonable and further even if the comparables are to be accepted then the margin of the Respondent in that case fell within the Safe Harbour Rules. The Hon'ble Delhi High Court did not comment on the specific comparable of Accentia Technologies. Even otherwise, the one company if held not be comparable with another company, it cannot be said that the same is not at all comparable with the whole world. In view of this the action of the AO in including Accentia Technogloeis cannot be faulted with. Further the decision of the Hon'ble Bombay High Court in the case of Pr. CIT vs. Aptara Technology Pvt. Ltd. (2018) 92 taxmann.com 240 (Bom) is pertaining to AY 2008-09 wherein, the amalgamation in Accentia Technologies happen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o segmental accounting is available. 22 The Ld. DR supported the orders of the TPO and DRP. 23 We have carefully consider the rival contentions and also perused the balance sheet of TCS E-serve Ltd. Submitted at page no. 693 to 735 of the Paper Book for the year ended on 31.3.2010. The functions shown by the company are at Schedule-O which shows that the company is engaged in IT enable service and BPO services. It is also engaged in technical services of software testing verification and validation software. These functions itself shows that this comparable is not to be taken in comparability analysis of the assessee. Further, the gross revenue of the comparable company is Rs. 1359 Crores whereas the assessee's turnover is merely Rs. 15 crores. Further, the assessee was also contributing to the Tata Brand as per Schedule-N of the balance sheet. Further all the business of the company is considered as single segment and segmental analysis was not available of software testing and other ITES services. In view of this looking to the functional analysis of the company, size of the business of the assessee and brand value of the comparable, it deserves to be excluded. 24 The other c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used were also different. The company derives its revenue from business process management services at page no. 593 of the Paper Book which are neither shown by the assessee nor by the Ld. TPO that what kind of services are provided by the comparable company. The same is also not coming out of the Annual Accounts of the company as well as the segmental accounts. Therefore, for the simple reason of not having proved by the TPO how this company is functionally comparable with the assessee company when assessee itself has objected later on before him, it cannot enter into the comparability analysis for benchmarking the international transactions. Even otherwise, it has a huge brand value and the huge asset base of intangible assets. Therefore, the same is not comparable. The risk of the Infosys BPO Ltd. is also ranging over various industrial segments of customers and across geographies. Therefore, it bears higher risk. Hence, in the absence of the specific functions, huge asset base including brand value and higher risk, this comparable is to be excluded. 29 In view of the above facts, the appeal of the Assessee is decided with respect to various claims pressed before us. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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