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TMI Blog2020 (6) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... /information relating to said working capital adjustments were not readily available with the assessee during the DRP proceedings therefore assessee could not submit the same before the ld DRP, and consequently the ld DRP could not direct the TPO to take into account to compute the arm`s length price adjustments (Transfer Pricing adjustments) and this had resulted into wrong determination of arm`s length price of the assessee`s transactions. The Ld Counsel further submits that now the assessee got the data/information for working capital adjustments, therefore, he prays the Bench that additional evidences relating to working capital adjustments may be admitted and ld TPO may be directed to consider the same to compute the transfer pricing adjustments, if any. 3. The additional evidences submitted by the assessee by its letter dated 30.04.2019, are reproduced below: "1. The instant appeal for the Assessment Year 2011-12 was filed by your petitioner against an order dated July 27, 2017 passed by the Deputy Commissioner of Income Tax (Appeals) - 12(1), Kolkata made under section 144C of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). 2. Your petitioner states tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Annexure "A" of the instant application in the instant appeal being ITA No. 2110/Kol/2017 for the Assessment Year 2011-12; (b) Such further or other order or orders be made and/or directions be given as to this Hon'ble Tribunal may seem fit and proper." 4. Learned DR for the revenue objected that these additional evidences should not be accepted, as it is an afterthought to evade tax liability. Why these evidences were not submitted by the assessee during the DRP proceedings? Therefore, ld DR strongly opposed that these additional evidences should not be admitted. 5.Per contra, ld Counsel submitted before us that the assessee wanted to submit these additional evidences before ld DRP but it was beyond his control, as the information/data were not readily available with the assessee and therefore the assessee was prevented by sufficient cause from producing these additional evidences during the DRP proceedings. The ld Counsel also pointed out that the omission of the detailed computation of working capital before the Hon'ble DRP was not willful or unreasonable. The assessee had kept the summary of the margin of the tested party and comparables, detailed computation of the w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs and inventories, Interest cost will be high if the trade receivable/debtors time cycle is large. Interest cost will be low if the company can pay its liabilities after a longer period. Holding of inventory has an interest cost and interest cost will be lower if inventory turnover is within a shorter period. The amount of trade debtors, trade creditors and inventories affects the overall results of a company. If the comparables have a higher intensity of accounts receivable, or inventories to sales, relative to the tested party, then it shows that the comparables were in effect, also providing a valuable financing function to their customers which would be compensated through higher prices. In such a situation the comparables are carrying out more value added functions than the tested party, therefore, the margins of the comparables should be adjusted downwards to enable a better comparison with the margins of the tested party. On the other hand, if the comparables have a higher level of accounts payable to sales relative to the tested party then this shows that these comparables were receiving a valuable financing function from their suppliers and would have paid a higher pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As far as calculation of PLI is concerned, the TPO is directed to adopt uniform approach for calculating PLI for the assessee as well as comparables. The objection is accordingly disposed off." 7. We note Ld DRP held that "the assessee has not provided the necessary data/details with computation of the working capital of the tested party and the comparables, in absence of the relevant data, the Panel is unable to give any direction to the TPO for working capital adjustments". From the above findings of the ld DRP, it is abundantly clear that during the DRP proceedings the assessee company could not furnish the data relating to working capital adjustments therefore ld DRP could not direct the TPO to consider working capital adjustments to compute the arm`s length price (ALP) of assessee`s transactions. 8. Now, the assessee has submitted the relevant information/ data for working capital adjustments, before the Bench by way additional evidences in the form of Annexure-A, which is reproduced below: Annexure-A 9. Now the question before us is that whether these additional evidences relating to "working capital adjustments" should be admitted or not? We note that Rule 29 and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided by the Tribunal and ends of justice demand admission of such an evidence, the Tribunal can pass an order to that effect to admit the additional evidence." We note that aim of the transfer pricing law is to determine the correct arm`s length price of the assessee`s transactions with its associated enterprises(AE). For the sake of argument, let say, if these additional evidences were not admitted by us, then it would have not been possible to determine the correct transfer pricing adjustments (ALP-adjustments) and as a result there will not be correct determination of tax liability of the assessee company. Therefore, we have to admit these additional evidences. In the light of the facts and circumstances, as explained above, and in the interest of justice and fair play, we admit these additional evidences (relating to working capital adjustments) filed before us and we remit these additional evidences to the file of ld TPO with the direction to examine these additional evidences and adjudicate the issue in accordance with law. For statistical purposes, the ground raised by the assessee is allowed. 10. The assessee has challenged before the Bench two comparable companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance, and expense management activities. Assessee`s professional services practice includes consulting, business analysis and solution testing. As a specialist assessee is able to provide complex process support, promote best practices among clients, and continuously improve processes. The assessee`s shared services support functions, such as knowledge management allows assessee to quickly institutionalize process knowledge, while assessee`s IT teams allow assessee to deconstruct, design, and automate functions leading to control and efficiency. [PB Pg. No. 215] The eClerx powers the operations of the Sales & Marketing divisions of some of the largest Fortune/ Financial Times/Internet Retailer 500 scale companies globally, augmenting bandwidth to drive greater quality and control to their digital operations, data management and analytics needs. Some of the key Sales & Marketing functions assessee supports includes web content management & merchandising execution, web analytics, social media moderation and analytics, search engine analytics & support, CRM platform support, lead generation, customer data management, supply chain and channel analytics, price & catalogue competitive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that we rely on the following precedents wherein the eClerx Services limited was rejected as a comparable company: (i). Pr. CIT vs. B. C. Management Services Pvt. Ltd (AY 2011-12) [ITA 1064/2017 &CM No. 43177/2017] wherein the hon`ble Delhi High Court upheld ITAT decision of excluding eClerx services on account of functional dissimilarity and absence of segmental data. Earlier the ITAT had held that the Assessee provides IT enabled services in infrastructure development and testing, system and performance operations management and support etc. while eClerx provided high value financial services relating to consultancy business and solution testing besides the web content management merchandising execution, web analytics etc and thus excluded it as a comparable. (ii). Pr.CIT vs. Evalueserve SEZ (Gurgaon) Pvt. Ltd (AY 2010-11) [ITA 241/2018] wherein the Hon`ble Delhi High Court upheld ITAT's decision of excluding eClerx and noted that its activity was functionally dissimilar because it performed KPO function whereas the assessee was classifiable as a BPO. (iii). Evalueserve SEZ (Gurgaon) Pvt. Ltd vs. ACIT, Circle 8(2) (AY 2011- 12) [ITA No.5147/Del/2017] The Co-ordinate Be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the objections before the ld DRP. The ld DRP examined the issue and held as follows: (1). The Function, Asset and Risk (FAR) of TCS eServe International Limited (TCS eServe) is similar to that of the Assessee. (2). High profits do not render an entity excludible. Only differences on account of FAR are material. (3). Taxpayer has not shown how payment of Tata Brand Equity and ownership of high profit margin is leading to high profit margin. Therefore, ld DRP retained TCS eServe International Limited (TCS eServe) as comparable company. 18. Aggrieved by the order of the ld DRP/TPO, the assessee is in appeal before us. 19. We heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld DRP/TPO and other materials brought on record. Learned Counsel for the assessee submitted before us that this company is Functionally different. The Assessee provides IT enabled services. [PB Pg. Nos. 89, 90,91 & 100 - 102] whereas a review of the annual report of TCS e-serve for FY 2010-11 evidences that the company is eng ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted (TCS eServe) company was rejected as a comparable. (i). Pr.CIT vs. Evalueserve SEZ (Gurgaon) Pvt. Ltd (AY 2010-11) [ITA 241/2018] wherein the Hon`ble Delhi High Court upheld ITAT's decision of excluding TCS eServe International and noted that it had a high brand value and, therefore, was able to command greater profits, besides, it operated on economic upscale. The ITAT [ITA No. 1467/Del/2017] in its order had directed the exclusion of TCS eServe International considering that the company is engaged in the business of software testing, verification and validation and thus not comparable. (ii). Evalueserve SEZ (Gurgaon) Pvt. Ltd vs. ACIT, Circle 8(2) (AY 2011-12) [ITA No.5147/Del/2017] The Coordinate Bench of ITAT Delhi in its order had directed the exclusion of TCS eServe International considering that the company is engaged in the business of software testing, verification and validation and also contributes to Tata Brand equity and thus not comparable. (iii). Pr. CIT vs. UNITED HEALTH GROUP INFORMATION SERVICES (P) LTD (AY 2010-11) [ITA 1180/2017, C.M. APPL.46758-46759/2017] wherein the Hon`ble Delhi High Court upheld ITAT's decision of excluding TCS eServe Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew was taken : "In the light of the above said decision, we are of the firm view that the interest earned from deposits with Corporation Bank, Electricity Board and on staff advances does not have direct or immediate nexus with the business of the assessee's undertaking and, consequently, they are not eligible for grant of deduction under Section 10B of the Act, which is akin to Section 80HH of the Act dealt with in the decision referred supra." 5. Mr. R.N. Bajoria, Learned senior advocate rightly pointed out that the judgment of the Madras High Court is of no relevance for the simple reason that sub-section (4) of Section 10B was not taken into account by the Hon'ble Madras High Court. Therefore, this judgment is of no assistance in deciding the issue. The learned Tribunal has passed the following order : 'There is no requirement for the purposes of section 10B to establish direct nexus between the income and the undertaking. The entire business income of the 100% EOU will be the "profits of the business of the undertaking". It has been held above that the interest earned on temporarily surplus business funds of the 100% EOU deposited with banks for short period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hindustan Gum & Chemicals Ltd (supra), we direct the AO/TPO to allow deduction under section 10A in respect of interest income of fixed deposits of Rs. 61,63,346/-.
25. Learned Counsel, during the course of hearing, has pressed the ground relating to additional evidences, ground relating to two comparable companies, viz:(i). eClerx Services Limited (eClerx), and (ii). TCS eServe International Limited (TCS eServe) and ground No.5, which we have adjudicated in our earlier paras. Other remaining grounds raised in form No. 36, were not pressed therefore, we do not adjudicate them.
26. Before parting, it is noted that the order is being pronounced after 90 days of hearing. However, taking note of the extraordinary situation in the light of the Covid-19 pandemic and lockdown, the period of lockdown days need to be excluded. For coming to such a conclusion, we rely upon the decision of the Coordinate Bench of the Mumbai Tribunal in the case of DCIT vs. JCB Limited in ITA No. 6264/Mum/2018 and ITA No. 6103/Mum/2018 for A.Y. 2013-14 order dated 14.05.2020.
27. The appeal of the assessee is allowed to the extent indicated above.
Order pronounced in the open court on this 10/06/2020. X X X X Extracts X X X X X X X X Extracts X X X X
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