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TMI Blog2019 (10) TMI 900X X X X Extracts X X X X X X X X Extracts X X X X ..... 'extraordinary items' such as the prior period rebate expenses should not be considered for the computation of the operating profits for the current year. Reliance is placed on the said Pune Bench decisions (supra) and the Delhi Bench decision in the case of EDAG Enggineers Design India (P.) Ltd. [ 2014 (10) TMI 1010 - ITAT DELHI] We should direct the Assessing Officer/TPO to re-compute the operating profit margin of the assessee without considering the said one-time price rebate and thus, we affirm the views of the DRP. Thus, on the strength of the precedents on the subject, the order of the DRP in giving the above direction to the Assessing Officer, is fair and reasonable and the same does not call for any interference. Accordingly ground No.2 raised by the Revenue is dismissed. - ITA No.667/PUN/2016 - - - Dated:- 24-7-2019 - MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM For The Revenue : Ms. Amrita Mishra for The Assessee : Shri Rajendra Agiwal ORDER D. Karunakara Rao, Accountant Member : This appeal is filed by the Revenue against the order of DRP-3, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ier A.Y. 2010-11 cannot be considered as operating expense for the purpose of computing the operating profit margin of the assessee in the present A.Y. 2011-12. Hence, the consequent adjustment made by the TPO cannot be sustained. We allow the ground in favour of the assessee and direct the AO/TPO to recompute the operating profit margin of the assessee without considering the one-time price rebate of ₹ 5,32,10,455/-. Thus, at the end of the TPO proceedings, the PLI (OP/OC) of the assessee is worked out (paras 3.6 and 3.7 of the DRP's order) as under :- 3.6 Consequently, the TPO re-computed the PLI of the assessee at (-) 12.67% as against 21.15% computed in the assessee's TP Study Report, as per the following details: Assessee's computation in the TP Study Report TPO's computation in the order u/s.92CA(3) Operating revenue 19,05,78,106/- 19,05,78,106/- Less: One-time price rebate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferentiators As a leading offshore provider of end-to-end services to the Sales Marketing universe, eClerx has deep domain knowledge and process expertise that enable it to serve and adapt to the fast growing and evolving digital marketplace. We deploy skilled resources together with process redesign and automation to provide best-in-class service delivery to industry leading firms. Our sales and marketing clients view us as trusted and expert partners, and come to us for our business solutions and our ability to provide cost effective scaling to their operations... ...We are pleased to inform that eClerx has become one of India's first KPO to be appraised for and rated at maturity level 3 of the People Capability Maturity Model 6.28 The product description in the notes to accounts shows that the assessee is engaged as a KPO Service provider. On perusal of the above, there is no doubt that the company is a KPO engaged in providing specialised services in data analytics and process outsourcing. The activity of this company is functionally different from that of the assessee's ITES segment, which is a low end activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find it is a fit case for condoning the delay of 14 days. After condoning the delay, we proceed to adjudicate the appeal of the assessee in the following paragraphs. 12. We shall now take up the issue-wise adjudication in the following paragraphs. 1. Inclusion/Exclusion of E-clerx Services Ltd. - Ground No.1 13. Before us, at the outset, ld. Counsel for the assessee suitted that this is a covered issue and the said comparable is functional different as it is engaged in KPO services; while the assessee is a ITeS/BPO company. This is good enough reason for exclusion of the said comparable from the scope of the TP study. Further, ld. Counsel submitted that the said comparable is engaged in providing data analytic, data management and process improvement solutions to the customers. In this regard, ld. Counsel for the assessee brought our attention to the contents of page 80 of the Annual Report of the said company. Further, referring to the Bombay High Court's judgment in the case of Pr. CIT v. PTC Software (India) (P.) Ltd. ( ITA No.598 of 2016 dated 16.04.2018) , ld. Counsel submitted that the KPO companies are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R 533 wherein Delhi High Court held that KPO services could not be compared to call centre services, although both would fall under the umbrella of ITES. Therefore, the functions of two cannot be considered to be similar for the purpose of being comparable. (v) In the above view, this question also does not give rise to any substantial question of law. It is essentially a finding of fact which is not shown to be perverse. Thus, not entertained. 14. Further, Id. Counsel for the assessee brought our attention to the decision of the Co-ordinate Bench of the Tribunal in the case of MACOM Technology Solutions (India) Private Limited v. Dy. CIT ITA No.2831/PUN/2016 and submitted that the Tribunal in the said decision excluded Eclerx Services Ltd. from the final set of comparables. The contents of paras 8 to 17 are relevant in this regard. For the sake of completeness of this order, the said paras 8 to 17 are extracted hereunder :- 8. Ground No.4 relates to the inappropriate selection of comparables which are functionally different from that of the assessee. In this regard, ld. Counsel for the assessee brought o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... formation System and Design Engineering service has been considered as KPO only. Hence, the objection of the assessee is not accepted. 10. From the above, it is evident that the data analysis function of (i) E-clerx Services Ltd. are loss making company and (ii) Genesys International Corporation Ltd. are not comparable that of the assessee. It is also a fact that the TPO never granted any adjustments to the functional differences. 11. Further, bringing our attention to the order of the DRP, ld. Counsel submitted that the reasoning given by the TPO was approved without application of mind to the actual functions of the comparables qua the assessee. Further, referring to the persistence of this issue, ld. Counsel brought our attention to the various decisions to demonstrate that the data analysis as function is no way comparable to the function of engineering designs reported by the assessee. The ld. Counsel for the assessee brought our attention to the decision of the Hon'ble Delhi High Court in the case of Actis Global Services Pvt. Ltd. v. PCIT vide ITA 417/2016, dated 05.08.2016, (page 648 of the Paper Book) and submitted that E-Clerx Servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. It is urged by Mr Sanjay Kumar, learned counsel for the Revenue, that the ITAT ought not to have excluded ESL as a comparable because both ESL and the assessee were KPOs and both were catering to high-end clients. 6. The above submission overlooks what ITAT itself has noted in its impugned order, that the function profile of the two companies were different. While the Assessee is catering to the capital and financial services markets, ESL works in the area of sales, marketing and supporting financial services. The financial profile of the two KPOs could not be said to be similar from the point of view of the type of businesses they were catering to. 12. Explaining the above said principle laid down by the Hon'ble Delhi High Court, ld. Counsel brought our attention to the various other decisions to demonstrate that mere grouping of KPO companies will not sufficient for identifying a good comparable by the TPO. 13. Further, referring to the Genesys International Corporation Limited, ld. Counsel for the assessee brought our attention to various decisions such as : (i) Vistcon Engineering Centre (India) Pvt. L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regarded as comparable and deserves to be excluded from the list of comparables. ...................... 31. We have considered the rival arguments made by both the sides, perused the orders of the TPO/AO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. As regards the selection of Genesys International Corporation Ltd. as comparable company is concerned we find the said company has not been considered as comparable by the TPO himself in A.Ys. 2010-11 and 2011-12. During A.Y. 2010-11 a specific show-cause notice was given to the assessee and the same was excluded after considering the detailed reply filed thereto. In A.Y. 2011-12, the said company was not included as comparable company even in the show cause notice. .. 33. Since the assessee-company is engaged in providing Engineering Design Services and since the Hyderabad Bench of the Tribunal in the case of Hyundai Motors India Engg. Pvt. Ltd. (supra) has excluded Genesys International Corporation Ltd. from the list of comparables on the ground that the company is functionally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be excluded for the purpose of benchmarking of the international transactions. Accordingly, ground No.4 raised by the assessee stands allowed. 15. The ld. DR, on the other hand, relied heavily on the order of the TPO. 16. Thus, it is a settled issue that the 'E-clerx' constitutes a KPO company and the same is not comparable to that of a BPO company like the present assessee. Considering the settled nature of the issue at the level of the Jurisdictional High Court on this issue, we find the order of the DRP and the Assessing Officer is fair and reasonable and it does not call for any interference. Accordingly, ground No.1 raised by the Revenue is dismissed. 2. - Computation of operating profit margin without considering the one-time price rebate - Ground No.2 17. Ground No.2 relates to the computation of operating profit margin of the assessee without considering the one-time price rebate of ₹ 5,32,10,455/-. 18. Briefly stated the relevant facts on this issue include that the rendered services to the parent company and receives service charges. These are certain acquisition and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee without considering the one-time price rebate of ₹ 5,32,10,455/-. Relevant para 3.10 of the order of the DRP is already extracted in the preceding paragraphs of this order. Eventually, the Assessing Officer passed the final order allowing the claim of the assessee on this rebate issue. Resultantly, the operating income before adjusting the said rebate as claimed by the assessee, is considered for PLI calculations of the assessee. 22. Aggrieved with the above views of the DRP, the Revenue is in appeal before the Tribunal with the above extracted ground No.2. 23. Before us, at the outset, ld. Counsel for the assessee submitted that the issue raised in the present ground No.2 relates to whether the prior period expense (rebate) is to be reduced from the operating profits of the year under consideration for computing the PLI for the current year. It has the effect of reducing the operating profits of the assessee for the year under consideration. On explaining the same, the ld. Counsel submitted that the similar issue was considered by the Co-ordinate Bench of the Tribunal in the case of Dy CIT v. Aam Services India (P.) Ltd. vide ITA No.553/PUN/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 62 lakhs, losses to the tune of about ₹ 35 lakhs relate to earlier year and the balance losses relate to this year. The Mumbai Special Bench of Tribunal in the case of Prakash L. Shah 115 ITD 167 (SB) had held that gain due to exchange rate difference in the year of receipt on account of earlier exports and allowance of deduction under section 80HHC of the Act in such later year was not sustainable. Following the simile, we hold that while computing PLI for the year under consideration, the loss arising on account of foreign exchange fluctuation to the tune of ₹ 35,31,729/- is to be excluded. However, the loss arising on account of export proceeds realized from exports of relevant year are to be considered while computing PLI of the assessee. In view thereof, we modify the order of CIT(A) and direct the Assessing Officer to re-compute the PLI in the hands of assessee and foreign exchange fluctuation losses of the earlier years are to be kept out of calculation of PLI for the year under consideration. The ground of appeal No.2 is partly allowed. 10. Thus, we dismiss the ground of appeal raised by the Revenue. 11. In the result, ..... 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