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TMI Blog2020 (12) TMI 728X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction between two or more associated enterprises, either or both of whom are non- residents, in the nature of purchase, sale or lease of tangible or intangible property, or provision of services, or lending or borrowing money, or any other transaction having a bearing on the profits, income, losses or assets of such enterprises, and shall include a mutual agreement or arrangement between two or more associated enterprises for the allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided to any one or more of such enterprises. In terms of Sec.92(1) of the Act, any income arising from an international transaction shall be computed having regard to the arm's length price. In this appeal by the Assessee, the dispute is with regard to determination of Arms' Length Price (ALP) in respect of the aforesaid two international transaction of rendering ITeS to the AE. 3. As far as the provision of ITeS are concerned, the Assessee filed a Transfer Pricing Study (TP Study) to justify the price paid in the international Transaction as at ALP by adopting the Transaction Ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arm's length price of the services rendered by the taxpayer to its AE(s) is computed as under: Arm's Length Mean Margin on cost 28.11% Less: Working Capital Adjustment -0.01% (As per Annex. C) Adjusted margin 28.12% Operating Cost 2,38,85,43,050 Arms Length Price(ALP) 3,06,02,01,356 128.12% ( of Operating Cost) Price Received 2,79,48,41,942 Shortfall being adjustment u/s 92CA: 26,53,59,414 5% of price received 13,97,42,097 Since the shortfall is exceeding 5% of the International Transaction, adjustment is made Thus, a sum of Rs. 13,97,42,097/- was added to the total income of the Assessee on account of determination of ALP for provision of SWD services by the Assessee to its AE. 6. The Assessee filed objections before the Disputes Resolution Panel (DRP) against the draft assessment order passed by the AO wherein the addition suggested by the TPO as adjustment to ALP was added to the total income of the Assessee by the AO. The Assessee filed objections before the DRP and the DRP gave certain directions. Based on the directions of the DRP, the AO passed the final order of assessment. To the extent the Assessee did not get relief from the DRP, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see in this appeal were also chosen as comparable in the case of the aforesaid assessee. On the comparability of Infosys BPO Ltd., and TCS e-Serve Ltd., the Hon'ble Tribunal held as follows: "13. On the segmentation of exclusion of Infosys BPO Ltd., the learned AR submitted that the turnover of said company is Rs. 1316.75 crores and functionally not comparable to the assessee-company and has brand profits and owns significant intangibles to the extent of 7.55% and erroneous margin computation. The learned AR supported his argument of exclusion on the brand profit segment that the company is functionally not comparable as it owns brand intangibles and incurred huge advertisement expenditure of Rs. 5.54 crores and marketing expenses of Rs. 1.54 crores for brand building and referred to pages 930 and 931 of the paper-book. Similarly, peculiar economic circumstances being acquisition of 100% stake in Portland Group during the year and the forex is treated as non-operating and referred to page 932 of the paper-book and the turnover higher Rs. 1316.75 crores which is outside 10 times range. Learned AR emphasized that Infosys BPO was excluded by the Tribunal considering the brand value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annual Report does not mention anything in regard to brand deriving its profitability. According to the TPO, the brand in service industry may derive revenue but does not affect the profitability. Ld. counsel for the assessee submitted that Infosys BPO Ltd. is functionally not comparable since the services are in the niche areas. He submitted that this company fails the TPO's own filter of rejecting companies with peculiar circumstances, since this company has acquired the Australian based company M/s. Portland Group Pty Ltd. during the financial year 2011-12. Further, the turnover of this company is more than 111 times than that of the assessee company and it has a presence of brand. Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India Pvt. Ltd. (supra) for assessment year 2012-13, he submitted that this company was examined by the Tribunal and the Tribunal directed the Assessing Officer/TPO to exclude Infosys BPO Ltd. on account of high turnover. Referring to the decision of Delhi Bench of the Tribunal in the case of Actis Global Services Pvt. Ltd. (supra), he submitted that Infosys BPO Ltd. was directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The company is engaged in ITES and software development services. Further, the segmental information between ITES and software development services are not available. The company has presence of brand and the services are provided pre-dominantly to Citi Group company. So far as the employee base is concerned, TCS e-Serve Ltd. has more than 296 times of that of the assessee's employee base. The turnover is greater than 133 times of the assessee. Incomparable size of operations, abnormal profitability trend and super normal profits are the other grounds for rejection of TCS e-Serve Ltd. as a comparable. He submitted that this company was examined by the Delhi Bench of the Tribunal in assessee's own case in ITA No. 345/Del/2016 and company was excluded from the list of comparables while computing the average margin of comparables. 14.1 Referring to the decision of the Bangalore Bench of the Tribunal in the case of Swiss Re Global Business Solutions India (P.) Ltd. v. Dy. CIT [IT (TP) Appeal No. 2315 (Bang.) of 2016, dated 13-4-2017] for the assessment year 2012-13, he submitted that the Tribunal had directed the Assessing Officer/TPO to exclude TCS e-Serve Ltd. from the li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp; Weighted Average 14.40% The correct computation of working capital adjustment is provided in Exhibit B." 13. The DRP, however, decided the issue by observing as follows: "Having considered the submissions, it is noticed by us from the web site of State Bank of India, that during the financial year 2011-12, the PLR interest rate were prevailing at 14.75%, 14.25%, 14%, 13.25% and 13%, the average of which works out to 13.85%. Therefore, we do not find any infirmity in the computation of the average PLR of SBI for working capital adjustment. The objection is accordingly rejected." 14. It is clear from the perusal of the submissions made by the assessee and the order of the DRP that the argument with regard to adopting weighted average of the interest rate was not considered by DRP. We are, therefore, of the view that it would be just and appropriate to remand the issue to the TPO/AO for fresh consideration with regard to computation of working capital level and the consequent adjustment on account of working capital. 15. As far as ground No.15 raised by the assessee is concerned, it is a consistent view of the Bangalore Benches of ITAT that forei ..... X X X X Extracts X X X X X X X X Extracts X X X X
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