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TMI Blog2020 (8) TMI 815X X X X Extracts X X X X X X X X Extracts X X X X ..... be taken into consideration, the bench marking analyses for determining the ALP of a transaction would be skewed. We accordingly confirmed the exclusion of domestic sales. TPA - Comparable selection - Re-characterised the business of the assessee as KPO service provider and has considered companies engaged in the business of providing KPO service in the final set of comparable companies - HELD THAT:- We have carefully considered the outsource service agreement dated 20.02.2010 entered into between the appellant with its AE. We find that the scope of work carried out by the appellant is merely data processing/ data feeding - We further find that in A.Y 2011-12, the Tribunal in assessee s own case has held that the appellant is not a KPO. Considering the past and the future history of the appellant, we hold that the assessee is an ITES company, therefore, comparable companies which pertain to KPO service provider are directed to be excluded. Comparable selection - Considering the appellant as ITES service provider companies functionally dissimilar with that of assessee need to e deselected from final list. TPO has adopted RPT filter @ 25% - RPT filter in excess of 25% company should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee computed its PLI at 19.05% whereas the same was computed at 13.61% by the TPO. 7. While computing the operating margin of the appellant company, the TPO excluded the following: i. FOREX Fluctuation ii. Domestic Revenue iii. Prior period expenses 8. The first grievance of the assessee relates to the re-computation of operating margin by the TPO. Before us, the Counsel for the assessee vehemently stated that in so far as the FOREX Fluctuation is concerned, the Tribunal in assessee s own case for A.Y. 2011-12 in ITA No.6078/Del/2012 has held that profit/ loss arising from FOREX Fluctuation is in the nature of operating income. Copy of the order was supplied. 9. Per contra, the DR strongly supported the findings of the lower authorities. It is the say of the DR that the FOREX gains/ loss on receivable is arising on account of change in FOREX rate at the time of realization after booking the sales at a different FOREX rate. This does not have any bearing on the transaction which is already been undertaken and therefore cannot affect the arm s length price of the transaction. The DR further stated that the assessee may be following a certain policy in respect of hedging of FOREX. Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... od expenses are concerned. The Counsel drew our attention to the decision of the Co-ordinate Bench in the case of Tupperware India Pvt. Ltd. in ITA No.2140/Del/2011 wherein the Tribunal has held that prior period expenses are not to be considered as part of operating expenses for the purpose of calculating the operating margin. 13. Per contra, The DR supported the findings of the lower authorities. We have given a thoughtful consideration to the order of the authorities below. In our considered view prior period expenses which are charged to the P L account relates to a period prior to the year under consideration. Therefore, to determine the correct operating profit for the year under consideration, the same should not be considered as part of the operating expenses for the year. A similar view was taken by the Co-ordinate Bench in the case of Tupperware India Pvt. Ltd. (supra). The relevant findings of the Co-ordinate Bench read as under: Table 2: Particulars F.Y. 2003-04 Sales 564,764,554 Cost of Sales 318,840,248 Service fee 4,794,553 Employee Remuneration benefits 54,176,687 Administration Expenses 73,323,119 Selling Distribution expenses 104,993,775 Depreciation 14,640,476 To ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovider and has considered companies engaged in the business of providing KPO service in the final set of comparable companies. We have carefully considered the outsource service agreement dated 20.02.2010 entered into between the appellant with its AE. We find that the scope of work carried out by the appellant is merely data processing/ data feeding. We further find that in A.Y 2011-12, the Tribunal in assessee s own case in ITA No.6078/Del/2015 has held that the appellant is not a KPO. The relevant findings of the Co-ordinate Bench read as under: 41. We have heard the rival submissions and perused the relevant materials available on record. The first issue is with respect to Transfer Pricing Adjustment of ₹ 5,52,01,139/-. We find that in TP study report assessee had considered itself to be in the business of providing Information Technology Enables Services (ITES) in the field of data processing to its associated enterprises. TPO re-characterized the business of the assessee and held the assessee to be a KPO service provider. TPO thereafter, after considering the assessee to be a KPO services provider, considered certain companies to be comparables with that of the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atters but at the same time it is also a settled law that there ought to be uniformity in treatment and consistency when facts and circumstances are identical. In the present case, as noted above, the business of the Assessee has been held to be in ITES segment in AY 2010-11 by the co-ordinate Bench of Tribunal and by DRP in AY 2013-14. Before us, no material has been placed by the Revenue to demonstrate that the characterization of the assessee as ITES service provider as held by the Tribunal in earlier years has been set aside/ stayed or overruled by higher judicial forum. Further no distinguishing feature in the activities undertaken by the assessee in the year under consideration or in earlier/ subsequent year has been pointed out by Revenue. In view of these facts and following the principle of consistency, we hold that TPO was not justified in re10 characterizing the assessee to be a KPO service provider. We therefore, hold that the assessee to be an ITES company. 17. We further find that the DRP in A.Y. 2013-14 vide order dated 12.05.2017 has rejected the TPO s contention of considering the appellant as a KPO service provider and held that the assessee is a routine ITES comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny should be excluded from final set of comparables. iii. Infosys BPO Ltd. 23. The Counsel vehemently stated that this company has been excluded in a series of decisions across the country by various benches of the Tribunal and also by the Hon ble High Courts. In particular the Counsel referred to the decision in the case of Avaya India Pvt. Ltd. in ITA No.532/2019. 24. Per contra, the DR stated that TNMM being more prominent takes care of material itself in terms of situation/ circumstances and environment. It is the say of the DR that it is nearly impossible to get comparable cases with no differences at all. The DR continued by saying that this company has similar functional profile and, therefore, should be retained. 25. We have carefully considered the rival submissions. The Hon ble High Court of Delhi in the case of Avaya India Pvt. Ltd. 416 ITR 638 had the occasion to adjudicate on the inclusion or otherwise of Infosys BPO Ltd. The relevant findings of the Hon ble High Court read as under: 22. The Revenue‟s appeal against the same Assessee for AY 2011- 2012 against another order of the ITAT excluding TCS E-Serve International Limited, Infosys BPO Limited from comparabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d small size Company engaged in Software service, it would obviously be wrong and perverse. The very word comparable means that the Group of Entities should be in a homogeneous Group. They should not be wildly dissimilar or unlike or poles apart. Such wild comparisons may result in the best judgment assessment going haywire and directionless wild, which may land up the findings of the Tribunal in the realm of perversity attracting interference under section 260-A of the Act. 27. There is merit in the contention of the Assessee that the scale of operations of the comparables with the tested entity is a factor that requires to be kept in view. TCS E-Serve has a turnover of ₹ 1359 crores and has no segmental revenue whereas the Assessee‟s entire segmental revenue is a mere 24 crores. As observed by this Court in its decision dated 5th August 2016 in ITA 417/2016(PCIT v. Actis Global Services Private Limited) Size and Scale of TCS‟s operation makes it an inapposite comparable vis-a- vis the Petitioner. As already pointed out earlier there is a closer comparison of TCS EServe Limited with Infosys BPO Limited with each of them employing 13,342 and 17,934 employees respe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned AR has pointed to its business which is in the nature of knowledge processing outsourcing (KPO) namely web analytics, business intelligence, competition benchmarking and pricing, consulting etc. We find that the Hon ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. (supra) has held it to be a company engaged in the provision of KPO service and therefore cannot be regarded as an appropriate comparable for benchmarking the international transactions of provision of BPO services. We also find that in various other decisions, the Co-ordinate bench of Tribunal has held it to be providing KPO services and therefore not comparable to the BPO services. In view of these facts, we direct the AO to exclude it on account of functional dissimilarity. 27. Respectfully following the findings of the Co-ordinate Bench (supra), we direct for the exclusion of this company from the final set of comparables. 28. The Counsel further argued on the exclusion of TCS E-Serve Ltd. The DR pointed out that this company was included in the final set of comparables by the Tribunal in assessee s own case for A.Y. 2011-12 wherein the Tribunal has followed its own decision for A.Y. 2010-11. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e first grievance is similar to the grievance raised in ITA No.1178/Del/2017 (supra) and relates to the computation of the operating margin of the appellate company. The appellant company has computed its operating margin at 12.62% whereas the TPO has computed the same at 10.46%. The TPO did not consider (i) FOREX Fluctuation, (ii) Bank charges, (iii) Assets written off and (iv) Prior period expenses. 36. In so far as FOREX Fluctuation and prior period expense are concerned, we have discussed this issue in detail in ITA No.1178/Del/2017 (supra) for our detailed discussed therein. We hold accordingly. 37. So far as Bank charges are concerned. The same was definitely a charge against the operating profit and deserves to be excluded. In so far as asset written off is concerned, the write off is of capital in nature and should be excluded for the computation of operating margin with these above directions we direct the AO/ TPO to recompute the operating margin of the appellant company. 38. In the final set of comparables exclusion of TCS E-Serve has been argued at length. Though this company was included in the final set of comparables by the Tribunal in assessee s own case for A.Y. 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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