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TMI Blog2019 (10) TMI 1286X X X X Extracts X X X X X X X X Extracts X X X X ..... count of TP adjustments were not argued and therefore treated as not pressed for adjudication. Deduction u/s.43B - employees contribution under the Employees State Insurance Act, 1948, on the ground that the same were paid beyond the due date as per the relevant law relating to employees state insurance even though the said contributions were remitted on or before the due date for filing return of income under section 139(1) - HELD THAT:- It is not in dispute before us that it has been held in the case of CIT Vs. Spectrum Consultants India (P) Ltd. [ 2014 (2) TMI 127 - KARNATAKA HIGH COURT] that employees contribution if it is paid on or before the due date prescribed under section 139(1) of the Act should be allowed as a deduction. In view of the above, we direct the AO to allow the claim for deduction. Deduction u/s 10A - whether the Revenue authorities were justified in reducing the telecommunication charges from the export turnover without reducing the same from the total turnover while allowing deduction to the assessee? - HELD THAT:- It is not in dispute before us that the Hon ble Karnataka High Court in the case of CIT Vs. Tata Elxsi Ltd., [ 2011 (8) TMI 782 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a company incorporated under the provisions of Companies Act, 1956 and is engaged in providing contract software development services (SWD services) and contract information technology enabled services (ITES) to its Associated Enterprises (AE) as a captive service provider. The first issue that needs to be decided in this appeal is as to whether the consideration received by the assessee for providing IT enabled services (ITES) to its AE is at arms length as laid down under the provisions of section 92 of the Act. The assessee received a sum of ₹ 13,60,48,189/- for providing ITES to its AE. To justify the price paid in the international transaction as at arms length, the assessee filed the TP study in which it had chosen Transaction Net Margin Method (TNMM) as the most appropriate method for determining arms length price (ALP). The profit level indicator (PLI) chosen for the purpose of comparison was operating profit on total cost (OP/TC). The OP/TC as computed by the assessee was at 14.60%. The assessee had chosen 6 comparable companies and compared their average arithmetic mean profit margin which was 13.65% with the profit margin of the assessee and claimed that since t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee. The Tribunal held that the aforesaid 2 companies should be excluded from the list of comparable companies as they were not functionally comparable with ITES. The following were the relevant observations of the Tribunal:- 5. We have heard the rival submissions on the comparability of Infosys BPO as a comparable company. The Delhi ITAT in the case of Baxter India Pvt. Ltd. Vs. ALIT ITA No.6158/Del/2016 for AY 2012-13 in the case of a company rendering ITES such as the Assessee, vide order dated 24.8.2017 Paragraph 23 held that Infosys BPO is not comparable with a company rendering ITES for the following reasons:- 23. In so far as exclusion of Infosys BPO Ltd. is concerned, we find from the submissions made by the assessee before the Assessing Officer/TPO/DRP is that Infosys BPO Ltd. is predominantly into areas like Insurance, Banking, Financial Services, Manufacturing and Telecom which are in the niche areas, unlike the assessee. Further it was also submitted that the Infosys BPQ Ltd. comprises brand value which will tend to influence its business operation and the pricing policy thereby directly impacting the margins earned by the Infosys BPO Ltd.. We find the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15% and is also functionally different. The assessee in this regard at the time of hearing placed reliance on the decision of ITAT Bangalore Bench in the case of Indegne Pvt. Ltd., Vs. ACDIT in IT(TP)A No.591/Bang2017 for asst. year 2012-13 order dated 2/8/2017 wherein at page 10 of this order in para 10.3.2 the Tribunal remanded the matter of comparability of this company with ITES company. Decision in the case of M/s e4e Business Solution India Pvt. Ltd., Vs. ITO in IT(TP)TP No.451/Bang/2017 was also filed in support of assessee's claim for remand on functional comparability. The Tribunal in the impugned order however in paragaraph 13 to 13.2 followed the decision rendered in the case of CGI Information Systems and Management Consultation Ltd., Vs. ACTT-TS- 320-ITAT-2018(Bang) wherein this company was considered as comparable with ITeS company. The Tribunal however did not render any decision on functional comparability of this company. On the above objections in the MP, the Tribunal recalled the original order for analysis the comparability of this company afresh, with the following observations: 7. We have considered the submissions of the Ld. counsel for the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble DRP confirmed the findings of the TPO. 11.1 Being aggrieved, the assessee is before us contending that this company is functionally different as it is engaged in diversified business activities of BPO such as banking, finance, insurance. Learned AR of the assessee has also drawn our attention to the Annual Report placed at pages 563 to 563 of the paper book and reliance in this regard was placed on the following decisions: Turnover Filter: i. McAfee Software (India) Pvt Ltd US-136-ITAT-2016(Bang)-TP] ii. Swiss Re Global Business Solutions India (P.) Ltd. FS-307-ITAT- 2017(Bang) Functionally different filter: i. XL Health Corporation India (P.) Ltd. (supra) ii. Baxter India (P.) Ltd. v. ACIT12017185 taxmann.com 285 (Delhi - Trib.) iii. CGI Information Systems and Management Consultants (P.) Ltd. (supra) 11.2 On the other hand, ld. CIT(DR) opposed its exclusion. He submitted that this company is engaged in KPO services and there is no difference between KPO and ITES. 11.3 We have heard rival submissions and perused material on record. The issue of comparability of this company was considered by the co-ordinate bench of Tribunal in the case of XLH ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was due to the fact that the assessee in the preceding Assessment year did not consider foreign exchange loss as operating in nature. The DRP was of the view that the assessee has to be consistent in the approach in this regard. 13. At the time of hearing, however, the learned Counsel for the assessee brought to our notice the decision of the ITAT Bangalore Bench in the case of Finastra Software Solutions (India) Pvt. Ltd., Vs. ACIT (2018) 93 taxmann.com 460 (Bangalore Trib.) wherein this Tribunal considered the very same issue and held as follows:- 38. As far the issue treating foreign exchange gain as operating revenue is concerned, it has been held a several decisions of various Benches of ITAT that foreign exchange gain, to the extent it relates to or connected with the business for which ALP is determined, is to be regarded as operating revenue or loss as the case may be. In the case of SAP Labs India (P.) Ltd. v. Asstt. CIT [2010] 8 taxmann.com 207/[2011] 44 SOT 156 (Bang.) and Trilogy E Business Software India (P.) Ltd. v. Dy. CIT [2011] 12 taxmann.com 464/47 SOT 45 (Bang)(URO), which decisions have subsequently been consistervs followed by this Tribunal, lays down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion rendered by the Bangalore Bench of ITAT in the case of Commonscope Networks (India) Pvt.Ltd. (supra) is distinguishable. Therefore respectfully following the decision of the ITAT Bangalore in the case of SAP Labs India (P.) Ltd. (supra), we hold that the DRP was justified in directing the AO to consider the foreign exchange gain or loss as operating in nature. Therefore, in light of the above, this ground of the Revenue is liable to be dismissed. 14. In view of the aforesaid decision, we are of the view that the foreign exchange gain has to be treated as part of the operating profit while computing the profit margin of the assessee as well of the comparable companies. The TPO is directed to compute the ALP in the light of the directions given above, after affording opportunity of being heard to the assessee. All other issues arising on account of TP adjustments were not argued and therefore treated as not pressed for adjudication. 15. The next issue that needs to be adjudicated is as to whether the Revenue authorities were justified in disallowing a sum of ₹ 1,19,694/- u/s.43B of the Act, being employees contribution under the Employees State Insurance Act, 1948, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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