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TMI Blog2019 (1) TMI 1352X X X X Extracts X X X X X X X X Extracts X X X X ..... A No.2669/PUN/2016 - - - Dated:- 21-1-2019 - Shri Anil Chaturvedi, AM And Shri Partha Sarathi Chaudhury, JM For the Assessee : Shri Nikhil Pathak For the Revenue : Smt. Nandita Kanchan ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by the assessee emanates from the order of the Assessing Officer/DRP passed u/s.143(3) r.w.s.144C(13) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) as per grounds of appeal on record. 2. At the time of hearing, the Ld. AR of the assessee submitted that if the ground Nos. 4, 6 and 8 are adjudicated then other grounds becomes academic in nature. 3. The brief facts in this case are that the assessee-company, M/s. Homeward Residential Corporation India Private Limited, Pune e-filed its return of income for assessment year 2012-13 on 26.10.2012 declaring total income at ₹ 15,15,19,230/-. The case was selected for scrutiny through CASS. Accordingly, statutory notice u/s. 143(2) of the Act was issued and served on the assessee along with questionnaire for compliance. Simultaneously, the case was referred to the Transfer Pricing Officer for determining Arm Length Price (ALP) after obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be substantiated. Majority of the company s total employee cost will be attributable to the ITes/BPO industry since the same is a workforceintensive industry. 6. The contention of the Ld. AR of the assessee at the time of hearing before us was that Universal Print Systems Limited should be excluded as comparable with the assessee-company since the function is absolutely different. As evident from the web-site description, Universal is engaged in Print Industry/Sector and does not have any relation with the ITes sector. In support of this, Page 144 of the paper book for the web-site description of Universal Print Systems Limited has been provided before us. Prepress BPO segment of this company is considered as comparable to the ITes-BPO services provided by the assessee. This is due to mere usage of the term BPO in the nomenclature of this segment. The term Prepress is used in the Printing and publishing industries for the processes that occur between the creation of a print layout and the final printing. Hence, the Prepress segment is by no way functionally comparable to the ITes-BPO business of the assessee. This contention is duly supported by the decision of Co-ordinat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2012-13 2013-14 2014-15 2015-16 Operating Margin 364.14% 301.13% 41.27 60.07% 22.65% 0.43% Additionally, Excel Infoways Limited had shut down its BPO operations during Financial Year 2011-12 being under consideration. This fact is referred in item No.6, Page 311 of the paper book filed. This contention is duly supported and covered by the decision of Co-ordinate Bench of the Tribunal, Pune in the case of Emerson Climate Technologies (India) Pvt. Ltd. Vs. DCIT, in ITA No. 359 and 2847/PN/2016 dated 25th April,2018 which pertains to the assessment year 2012-13 and also Emerson Climate Technologies (India ) Pvt. Ltd. Vs. DCIT, in ITA No.2432/PN/2010 dated 6th June, 2018 ( refer para 18-19 of the order page 415 to 416 of the paper book. 9. The Ld. AR of the assessee further submitted that Excel Infoways Limited fails the diminishing revenue filter as applied by the Ld. TPO and DRP for diminishing revenue filter to exclude the companies from the comparable set. Reference is being made in para 3.2.4 at Page 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impact on operations in 2011-12. The periodic fuel price increases through our 2011-12 not just ensured high inflation cutting across every input element, but also adversely affected our cost of captive power generation which became the only source of power during certain periods in 2011- 12. In addition, procurement cost of raw materials such as paper, film and ink rose IT(TP)A No. 2311/Bang/2016 substantially along with market expectation regarding price reduction of printed products. From this it is very clear that this company is into the business of printers whereas the assessee-company is into the Business Process Outsourcing. Therefore by no structure of imagination these two companies can be considered to be functionally similar and therefore we direct the AO / TPO to exclude this company from the list of comparables. 11. The facts and circumstances in this case are also similar and the company as non comparable in question is Universal Print Systems Limited. Therefore, following the decision of Co-ordinate Bench of the Tribunal, this company cannot be considered to be functionally similar and therefore, Assessing Officer/ TPO is directed to exclude this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... affording reasonable opportunity of hearing to the assessee. Thus, ground No. 3 raised in appeal by assessee is allowed. In the case of Excel Infoways Limited, a chart provided before us wherein we have seen that there is fluctuating profit margins and following the same parity of reasoning, Excel Infoways Limited because of fluctuating profit margin, is to be excluded from the final set of comparables. 13. Further, the TPO has applied diminishing revenue filter to exclude the companies from the comparable set whereas, the revenue of Excel Infoways Limited also clearly demonstrated diminishing revenue trend. In such situation, we refer to the decision of Co-ordinate Bench of the Tribunal, Delhi in the case of Baxter India Pvt. Ltd. Vs. ACIT (supra.) where the Tribunal has held as follows: 24. So far as exclusion of Excel Infoways Ltd. is concerned, we also find merit in the submissions of the ld. counsel for the assessee that the above company should be excluded from the list of comparables. This company fails TPO's own filter of diminishing revenue and abnormal volatility in revenue and margins. We find from the order of the TPO at para 7.5 (page 24 - 25 of the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f DCIT vs. Willis Processing Services (India) Pvt. Ltd. vide ITA No.2152/Mum/2014 has upheld the order of the DRP rejecting Excel Infoways Ltd. as comparable company on the ground that the company has a super normal profit of 203.80% and low employee cost 10.02%. We, therefore, find merit in the submissions of the ld. counsel for the assessee that Excel Infoways Ltd. should be excluded from the list of comparable on account of super normal profit of the said company in the preceding year. 25.1 Further, from the order of the TPO we find he has obtained the employee cost and the sale for the ITES segment by exercise of his powers u/s.133(6), wherein the said company has allocated entire employee cost to IT - BPO segment with no allocation to Infra Activity segment which accounts to 49% of Excel's total revenue. In our opinion, it is highly impractical that no employee has been hired by Excel for Infra Activity segment. We, therefore, find merit in the argument of the ld. counsel for the assessee that the information provided as per section 133(6) by Excel Infoways Ltd. is unreliable and should not be used to compute employee cost for ITES segment. The Delhi Bench of the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application in the assessment year 2010-11. In the case of Approva System Pvt. Ltd Vs. CIT(A)- IT/TP (supra.), the Co-ordinate Bench of Tribunal has held that foreign exchange gain/loss is part of operating income. The relevant extract of findings of the Tribunal on this issue is as under: 22. We have considered the rival arguments made by both the sides. As reproduced above in para 20 in the arguments advanced by the Ld. Counsel for the assessee, we find the Delhi Bench of the Tribunal in the case of Westfalia Separtator India Pvt. Ltd., (Supra) following various decisions has held that foreign exchange loss/gain is a part of the operating revenue/cost. In the following decisions also (filed in the paper book by the assessee), it has been held that foreign exchange fluctuation cannot be excluded from the computation of the operating margin of the assessee company: 1. SAP Labs India P. Ltd. Vs. ACIT 44 SOT 156 (bang) 2. Prakash I Shah reported in (2008) 115 ITD 167 (Mum) (SB) 3. Smt. Sujata Grover Vs. Dy.CIT (2002) 74 TTJ (Del) 347 4. M/s. S. Narendra Vs. Addl.CIT ITA No.6839/Mum/2012 Mumbai Tribunal 5. M/s. Mercedes Benz Research development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitigated entity is duly noticed and appreciated by the learned TPO in his order at page 84 of the Appeal memo. The Ld. AR further submitted that risk adjustment should be allowed. The Ld. AR has placed reliance on the decision of Pune Bench of the Tribunal in the case of Starnet Networks (India) Pvt. Ltd. Vs. ACIT, in ITA No.164/PUN/2013 dated 09.02.2018. 19. We have perused the case record and considered the judicial pronouncements placed before us. In ITA No. 164/PUN/2013 (supra.), the Tribunal has observed on this issue as follows: 34. Now, coming to the last issue in respect of economic adjustment on account of risk differences. The case of the assessee is that the assessee being remunerated on cost plus basis where it is providing services to its associated enterprises, it is risk free and adjustment for differences between functional and risk profile of the comparable companies is to be allowed in the hands of assessee. 35. We find that similar issue has been raised in DCIT Vs. Applied Micro Circuits India Pvt. Ltd. (supra), wherein it was held as under:- 18. The next issue raised vide ground of objection No.2.2 is against the claim of risk adjustment. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer to allow risk adjustment in turn relying on the proposition laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra), wherein it was allowed @ 20%, and compute the TP adjustment, if any, in the hands of assessee. The ground of appeal Nos.3 to 8 are thus, allowed. That basically, the proposition laid down by the Delhi Bench of the Tribunal in the case of Sony India Pvt. Ltd. reported in 114 ITD 448 wherein it was allowed @20% and thereafter, the Assessing Officer was directed to compute TP adjustment in the hands of the assessee, if any. Respectfully, following the decision of our own Co-ordinate Bench, we allow this ground of appeal. Hence, ground No. 8 raised in appeal by assessee is, thus, allowed. 20. That as submitted by the Ld. AR of the assessee that in the grounds of appeal, if ground Nos. 4, 6 and 8 are adjudicated, rest grounds become academic in nature. Therefore, after adjudication of the said grounds i.e. Ground Nos. 4, 6 and 8, the remaining grounds herein becomes academic. 21. In the combined result, appeal of the assessee is allowed. Order pronounced on 21st day of January, 2019. - - TaxTMI - TMITax - Income ..... X X X X Extracts X X X X X X X X Extracts X X X X
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