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TMI Blog2017 (2) TMI 1455X X X X Extracts X X X X X X X X Extracts X X X X ..... ome from services in the nature of interest on the delayed payments made by associated enterprises for the provision of IT enabled services as an operating income and hence erred in computing the effective mark-up on total, cost earned by the Appellant - HELD THAT:- Delhi Bench rendered in the case of EFunds International (P.)Ltd. v. Dy. CIT [ 2008 (4) TMI 354 - ITAT DELHI-F] wherein it was held by the Tribunal that the assessee was not eligible to claim deduction u/s 10A of the IT Act, 1961 on the interest income earned by the assessee from the housing loans advanced to its employees because it did not form part of the business of the assessee. CIT(A) as noted by him in his order, we find no infirmity in the order of the ld. CIT(A) on this issue and since the working capital adjustment has already been allowed by the TPO, we are of the considered opinion that non interference is called for in the order of the ld. CIT(A) on this issue. Accordingly, ground no.5 of the assessee is rejected. Working capital adjustment - HELD THAT:- Working of risk adjustment claimed by the assessee is not available in the TP study and is not made available before the TPO or before the ld. CIT(A) or be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ransfer price of the Appellant in respect of its IT enabled support services in the nature of back office and customer support services 3. That on the facts and In the circumstances of the case, the learned CIT(A) while making adjustment erred in; (a) Upholding the rejection of comparability analysis of the Appellant in the TP documentation and accepting the comparability analysis performed by the learned TPO in the TP Order. (b) Disregarding application of multiple year/prior year data as used by the Appellant in the TP documentation and holding that current year (i.e, Financial Year 2008-09} data far companies should be used for comparability. (c) Upholding the learned TPO's approach of using data, as at the time of assessment proceedings, instead of that available as on the date of preparing the TP documentation for comparable companies white determining the arm's length price. (d) Arbitrarily arriving at a set of companies as comparable to the IT enabled support services of the Appellant on rejecting companies that are otherwise functionally comparable to the Appellant and on inclusion of companies that otherwise fail the test of comparability. 4. The learne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to add, to alter, to amend or delete any of the grounds that may be urged at: the time, of hearing of the appeal". 3. First we take up the appeal of the assessee. It is submitted by the ld. AR of the assessee that only ground no.3d and ground no.5 are to be decided and other grounds are general in nature. 4. Regarding ground no.3d, he submitted that the order of the ld. CIT(A) is very cryptic and without any reasoning and therefore, the matter regarding TP issue may be restored back to the file of the ld. CIT(A) fort fresh decision. 5. Regarding ground no.5, he submitted that this issue was raised before the ld. CIT(A) as per ground no. 11 which can be seen at page-157 of the paper book. He submitted that the interest received from AE on account of delayed payment by the AE should be considered as operating profit. At this juncture, it was pointed out by the Bench that if the assessee is having more debtors then, there may be a case for working out capital adjustment but how the interest income can be considered as operating profit. In reply, the ld. AR of the assessee had nothing to say. 6. As against this the ld. DR of the revenue supported the order of the authoritie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to his file for a fresh decision. We order accordingly. The TP issue is restored back to his file with a direction that he should pass a speaking and reasoned order after affording adequate opportunity of being heard to both sides. Ground no.3d is allowed for statistical purposes. 9. Regarding ground no.5, we find that this issue was decided by the ld. CIT(A) as per para-7.4.11 which is reproduced herein below; "7.4.11 Applying the aforesaid judicial authorities to the instant case, it is very clear that the interest income earned from debts has no nexus whatsoever with the business activity of the assessee which is export of software development services only. It is a matter of fact that the assessee has chosen to treat this income as other income in its financial statements. But however, at the time of preparing the TP study, it has chosen to include it as an 'operational income'. On account of the reasoning various judicial platforms as narrated above which can be legitimately applied to interpret the term 'operational income' vis-a-vis transfer pricing law, the action of the TPO in holding such receipts to be non-operational income is justified and he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... P.) Ltd. v. DCIT has observed: "The other issue is grant of adjustment i.e. working capital adjustment and risk adjustment while arriving at the arm's length price. In this case, the assessee is his transfer pricing study, has not made any working capital adjustment or risk adjustment. The AO has, in fact, granted working capital adjustment. When the assessee is confronted with the possible transfer pricing adjustment due to change of some comparables and addition of certain other comparables by the TPO, this claim of risk adjustment is made by the assessee. Though, in principle, these adjustments have to be made while arriving at arm's length price, on the facts and circumstances of the case, as the assessee has not worked out the risk adjustment and as the AO has already allowed. 0.47 per cent, as working capital adjustment, we are of the opinion, that no further adjustment is necessary". 7.3.2. On the basis of the aforesaid line of reasoning, I am of the view that once the AO/TPO has granted working capital adjustment, there is no necessary of providing any further adjustments. But, however, in the instant case, it. cannot be said that the TPO has provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services industry can be broadly classified under two business models(a) out sourced services where risks are passed on to the service provider, and (b) out sourced services where risks are not borne by the service provider. It is relevant to understand that the business process and commercial considerations would he different for (a) and (b) By and large al the Indian IT enabled service providers would come under the (a) category and captive IT enabled centres set by Multi National Corporations would come under (b) category. The business attributable and commercial parameters on which each of the above categories operates are provided in Table-4. Table-4 Difference in functions performed India IT Enabled Service Companies Captive IT Enabled Service Companies Responsible for providing services to the satisfaction of the client Operate on a shared service concept being located at low cost centre. Primarily leverage on the technology infrastructure of the location with support of quality local manpower. Operate on a profit centre model and thus tasks all entrepreneurial and business risks with extensive marketing efforts. Revenue models are generally cost plus. Does not take ..... X X X X Extracts X X X X X X X X Extracts X X X X
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