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TMI Blog2021 (3) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... her services. Besides both the above said companies are supported by their parent companies, having huge brand value. Accordingly, we hold that both the above said companies cannot be considered as comparable companies. Accordingly, we direct the AO/TPO to exclude both M/s Infosys BPO Ltd and M/s TCS E serve Ltd from final list of comparables. Treatment of foreign exchange gain/loss as operating income/expenses or not - HELD THAT:- As relying on M/s Arctern Consulting Pvt Ltd [ 2019 (10) TMI 1286 - ITAT BANGALORE ] has taken the view that the foreign exchange fluctuation gain/loss is operating in nature. Accordingly, following the same, we hold that that foreign exchange fluction gain/loss should be treated as operating profit/loss in nature while computing the profit margin of the assessee as well as of the comparable companies. ALP of the transactions require to be determined afresh in the light of decisions rendered supra. Accordingly, we restore this matter to the file of the AO/TPO. - IT(TP)A No.725/Bang/2017 - - - Dated:- 4-12-2020 - Shri George George K., Judicial Member And Shri B.R. Baskaran, Accountant Member For the Appellant : Shri Sarath Rao, A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75,11,974 962,91,06,964 36.30 5 Jindal Intellicom Ltd. 30,27,51,875 30,29,02,990 0.05 6 Microgenetic Systems Ltd. 1,29,93,217 1,08,63,390 19.61 7 T C S E-Serve Ltd. 15,78,44,000 9,64,28,000 63.69 8 B N R Udyog Ltd. (Seg)(Medical Transcription) 1,47,04,000 97,87,000 41.58 9 Excel Infoways Ltd. (Seg) (IT/BVPO) 790,96,95,000 559,06,04,000 29.79 10 E4e Healthcare Services Pvt. Ltd. 89,50,04,209 74,59,23,078 19.85 Average PLI 28.11% 5. After adding negative working c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness processing services, analytics/insights (KPO) and support services for both data and voice processes. (b) it offers integrated portfolio of service ranging from IT services to BPO services. Accordingly, it is submitted that this company is providing KPO services and hence functionally different. It is further submitted that the company is backed by M/s TCS Ltd and Tata brand equity. This company did not disclose BPO services as separate segment. It was submitted that major business of TCS E Service is from Citi Group pursuant to prior global arrangement making it a deemed international transaction. Further, Citi has signed an agreement with TCS to provide process outsourcing services to Citi and its affiliates for an aggregate amount of USD 2.5 billion over a period of 9 years during the FY 2008-09. The Ld A.R submitted that this company has also been excluded in many decisions. 9. The Ld D.R submitted that both the assessee and Infosys BPO Ltd fall under the category of companies providing ITES services in the form of business process outsourcing, i.e., both the companies are providing solutions to business processes outsourced to them. Even though M/s Infosys BPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of HP group and hence its brand value of HP cannot be compared with that of M/s Infosys and M/s Tata group. He submitted that M/s Infosys Ltd, the parent company has provided performance guarantee to clients of M/s Infosys BPO Ltd. He submitted that there is close connection between M/s TCS E-serve and Tata Consultancy Services Ltd, which has got high brand value. 14. The Ld D.R submitted that the service delivery is more important than the brand value. He further submitted that the annual reports do not show that the revenue growth of both the companies are attributable to its parent companies. The Annual report adduces other reasons for their growth. He submitted that the details of performance guarantee provided by M/s Infosys Ltd are not available and hence it cannot be presumed that such type of guarantee was provided to all the clients. The Ld D.R submitted that the impact of brand value was not examined in any of the earlier decisions rendered by the Tribunal in the assessee s own case. He further submitted that to perpetuate an error is no heroism as held by Hon ble Supreme Court in the case of Distributors Baroda Ltd (155 ITR 120). He submitted that the Hon ble Suprem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n host of decisions to contend that the companies having huge brand value cannot be considered as comparable company. In the case of Pr. CIT vs. M/s Sanvih Info Group P Ltd (ITA 420/2019 dated 16.05.2019)(Delhi), the Hon ble Delhi High Court referred M/s Infosys Ltd as giant corporation. In the case of Avaya India (P) Ltd vs. ACIT (2019)(108 taxmann.com 222), the Hon ble Delhi High Court has made following observations with regard to TCS E-Serve Ltd:- 21. A reference may next be made to the decision in Evalueserve Sez (Gurgaon) (P.) Ltd. ( supra ) where a reference is made to the earlier decision to the BC Management Services (P.) Ltd . ( supra ). This decision dealt with the exclusion of three specific comparables, which have also involved in the present case namely M/s. TCS E-Serve Ltd., M/s. TCS E-Serve International Ltd. and M/s. Infosys BPO Ltd. This Court upheld the exclusion of all three comparables and in particular since the entities had a high brand value and therefore were able to command greater profits; besides they operated on economic upscale. 22. The Revenue's appeal against the same Assessee for AY 2011-2012 against another order of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen they assign reasons for returning the particular findings. 49. For instance, while dealing with comparables of filters, if unequals like software giant Infosys or Wipro are compared to a newly established 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 in Pr. CIT v. Actis Global Service (P.) Ltd. [IT Appeal No. 417 of 2016, dated 5-8- 2016] Size and Scale of TCS's operation mak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017 dated 15.10.2019 relating to AY 2012-13) and it was held as under:- 10. As far as TCS E Service Ltd., is concerned, the comparability of this company was considered by this Tribunal in the case of Zyme Solutions Ltd., in its order dated 16.11.2018 as follows:- 11. TCS E Service Ltd.: This company was selected by the TPO and objected by the assessee for inclusion in the list of comparables on the ground that it is functionally different as it is engaged in the business of BPO, banking, finance, insurance domain. This contention was rejected by the TPO by holding that it is engaged in BPO, business of banking, finance, insurance domain, which are purely in the nature of ITES. Even the Hon'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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion of this company from the list of comparable. 11. Respectfully following the aforesaid decision, we hold that TCS E Service Ltd., should be excluded from the list of comparable companies. We notice that M/s TCS E-serve Ltd has been excluded, inter alia, for the reason that it is providing KPO services and further it is explicitly stated that it is an integral part of Tata Consultancy Services strategy to build on its Full Service offerings that offer global customers an integrated portfolio of services ranting from IT services to BPO services. It is further observed by the co-ordinate bench that the decision taken in respect of M/s Infosys BPO Ltd would equally apply to M/s TCS E serve Ltd also. 21. We have noticed that the assessee herein is undertaking backend processing of accounting and other transactions, back office operations, customer support services to various Associated Enterprises. Hence they are in the nature of BPO services only, while M/s Infosys BPO Ltd and M/s TCS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver brought to our notice a decision of the ITAT Bangalore Bench in the case of Commonscope Networks (India) (P.) Ltd. v. ITO IT(TP: A.No.166 181/Bang/2016 order dated 22.2.2017 wherein it was the foreign exchange gain or loss that arises should relate to the concerned AY because what is compared is the profit margin of a particular AY. According to him therefore the TPO/AO should examine the nature of foreign exchange gain or loss in the case of the Assessee and the comparable companies and to the extent it relates to turnover of the relevant AY and the segment for which ALP is being determined, the same should alone be considered as part of the operating revenue or loss. The learned counsel for the Assessee pointed out that it is impossible to carry out such an exercise. The Assessee might be willing to carry out such an exercise but the same cannot be expected from the comparable companies who have to furnish the relevant data. He also pointed out that under rule 10B(3) of the criteria for comparability is the effect of profit on account of differences. Rule 10B(3) reads thus: (3) An uncontrolled transaction shall be comparable to an international transaction if-- (i) n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as operating income. The Ld A.R submitted that the assessee, in its transfer pricing study, has always been treating foreign exchange loss/gain as operating in nature. In the preceding year, the assessee had incurred foreign exchange fluctuation loss and exclusion of the same resulted in increase of operating margin. Since it was advantageous to the assessee, the action of TPO was not objected to. He submitted that the nature of transaction is more relevant than the stand taken by the assessee. 24. We notice that the Tribunal, in the above said case, has taken the view that the foreign exchange fluctuation gain/loss is operating in nature. Accordingly, following the same, we hold that that foreign exchange fluction gain/loss should be treated as operating profit/loss in nature while computing the profit margin of the assessee as well as of the comparable companies. 25. In view of the foregoing discussions, the ALP of the transactions require to be determined afresh in the light of decisions rendered supra. Accordingly, we restore this matter to the file of the AO/TPO. 26. In the result, the appeal of the assessee is treated as allowed. Order pronounced in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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