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TMI Blog2019 (8) TMI 1664X X X X Extracts X X X X X X X X Extracts X X X X ..... m such allied services have been dealt with specifically by the TPO or DRP. Since the comparability of this company is being remanded to be TPO for consideration of adjustments as mentioned above, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Infosys BPO Ltd. is functionally not comparable with captive service provider. Thus we direct this company to be excluded from the list of comparables. TCS e-Serve Ltd. company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information - we direct Ld. TPO to exclude this company from the list of comparables. BNR Udyog Ltd. (segmental) - Assessee is challenging functional dissimilarity of this company with that of assessee as it is into medical tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... opportunity as per law to represent its case. Interest on receivables outstanding in relation to transaction with AE - HELD THAT:- This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. [ 2016 (7) TMI 760 - ITAT KOLKATA ] held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92B of the Act. We also perused decision relied upon by Ld. Counsel. In our considered opinion, these are factually distinguishable and thus, we reject argument advanced by Ld. Counsel. Alternatively as argued that working capital adjustment subsumes sundry creditors. In such situation computing interest on outstanding receivables and lones and advances to international transaction would amount to double taxation. As relying on Orange Business Services India Solutions Pvt. Ltd. [ 2018 (2) TMI 1151 - ITAT DELHI ] we deem it appropriate to set aside the impugned order on this issue and remit the matter to the file of the Assessing Officer/TPO for deciding it in conformity with the above referred judgment. Needless to say, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies. Universal Print Systems Ltd. Infosys BPO Ltd. TCS E-Serve Ltd. BNR Udyog Ltd. Excel Infoways Ltd. 4.7 The learned AO/learned TPO/Hon'ble CIT(A) has grossly erred in rejecting companies that ought to have been included as comparables: ICRA Online Ltd. Tech Process Solutions Ltd. Cameo Corporate Services Ltd. Crystal Voxx Ltd. Informed Technologies India Ltd. 4.8 The learned CIT(A) while aptly confirming the functional similarity of Accentia Technologies Ltd. with the Appellant, erred in: stating that if the comparable company gets excluded by higher Appellate authorities in the Appellant's appeal for A.Y. 2011-12 on the ground of functional dissimilarity, the same would apply to the year under consideration and would thereby require exclusion of the comparable in A.Y. 2012-13. not considering the fact that transfer pricing requires examining the profile of the comparable companies year on year basis and that the ruling of one Assessment year cannot automatically apply to another Assessment Year, 4.9 The learned AO/learned TPO/Hon'ble CIT(A) has erred in allowing negative working capital adjustment to the ITES segment of the Appellant. 4.10 The learned AO/learned T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided. 2. Brief facts of the case are as under: Assessee filed its return of income on 30/11/12 declaring total income of ₹ 18,86,56,470/-. The case was selected for scrutiny and notice under section 143(2) was served upon assessee in response to which representative of assessee appeared before Ld. AO and filed requisite details as called for. Ld. AO observed that assessee is engaged in the business of Software Development and Information Technology Enabled Services and that assessee entered into international transaction with its associated enterprise. A reference was accordingly made to Ld. TPO under section 92CA of the Act. Upon receipt of reference, Ld. TPO called upon assessee to file economic details of international transaction entered into by assessee in Form-3CEB. Ld. TPO observed that assessee had following international transaction: International Transaction Value (INR) Software and related services 52,82,25,923 IT enabled services 19,75,88,112 Reimbursement of expenses 16,96,997 Recovery of expenses 2,49,64,340 Balance of receivable 36,33,20,298 It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal) (IT) (BPO) Comparables sought for inclusion Informed Technologies India Ltd. Before we undertake the fact comparable it a analysis it is sine qua non to understand functions performed assets owned and risk assumed by assessee under ITeS segment: Functions In TP study, it has been submitted that assessee provides backoffice support services to its AE. Assessee provides routine back and support services in the mortgage industry vertical. It is recorded in TP study that assessee is entrusted with job of calculating fees for various zones after taking into consideration specific regulations of particulars state and other para meters. The fee calculator is inbuilt in the system and assessee is required to only input specific para meters into the system to calculate the fees. The TP study also reports that mortgage division verifies various deeds and documents required in mortgage process for clients based in USA. It is submitted that client sends across scanned documents were verification to AE, which are then uploaded on server of the AE. Assessee is then required to login to the server and verify the same. All server and applications are based out of AEs office in USA. In the ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erusal of annual report of this company placed in paper book, we are of considered opinion that this comparable is basically into sale of products and services unlike a captive service provider such as assessee, who works on cost plus basis, providing services only to its AE's. It is also observed that this comparable is basically providing BPO services from its Prepress units. In written submission filed, assessee placed reliance upon decision of this Tribunal in case of Zyme Solutions Pvt. Ltd., vs. ACIT reported in (2019) 101 taxman.com 292, wherein this comparable has been excluded by observing as under: 10.4 We heard rival submissions and perused the material on record. The issue of comparability of Universal Print Systems Ltd. with that of the assessee-company has been duly considered by TPO after referring to information contained in Annual Report. The relevant findings of the TPO had not been countenanced by learned AR of the assessee. However, the issue of comparability of Universal Print Systems Ltd. has also been considered by the co-ordinate bench of this Tribunal in the case of CGI Information Systems Management Consultants Pvt. Ltd. (supra) wherein it was held as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (b) This company has four major segments viz., Repro, Label Printing, Offset Printing and pre-press BPO. The employee cost of pre-press BPO was more than 25% of the revenue from prepress BPO and therefore the employee cost filter is satisfied in the case of this company. (c) On the service revenue filter viz., the requirement that a comparable company must have revenue from rendering services of more than 75% of its total revenue, the TPO again held that the pre-press BPO segment's entire income is from services and therefore this objection is not to be accepted. 49. On objections by the Assessee before the DRP, the DRP confirmed the action of the TPO. One of the objection before the DRP was that this company did not figure in the list of companies engaged in ITES. On this objection the DRP held that though this company did not figure in the list of companies in ITES in the main search of capital line and prowess database but on a segmental search these two companies satisfied the requirement of being considered as companies engaged in providing ITES. 50. Aggrieved by the directions of the DRP, the Assessee is in appeal before the Tribunal. The learned counsel for the Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion shall be judged with reference to the following, namely:-- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibilities, risks and benefits are to be divided between the respective parties to the transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail (3) An uncontrolled transaction shall be comparable to an in ternational transaction if-- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, the objection with regard to functional comparability should also be looked into by the TPO in the remand proceedings on the basis of materials which he may gather u/s. 133(6) of the Act, The Assessee should be given opportunity of being heard by the TPO before the issue is decided by the TPO.' Respectfully following the decision, we remand this comparable to the file of the TPO/AO for fresh adjudication on the above lines. Respectfully following aforesaid decision, we remand this comparable to file of Ld. AO/TPO, for fresh adjudication, on the basis of directions reproduced hereinabove. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside this comparable back to Ld. TPO. 2. Infosys BPO Ltd. Assessee objected for inclusion of this comparable primarily on the basis of functional incompatibility and presence of intangibles. It has been submitted that this company owns huge brand and not a fit comparables for company like assessee, who provide captive service to its AE's. Ld. CIT DR opposed the exclusion and placed reliance upon orders passed by authorities below. 6. We have perused submissions advanced by both sides in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accordingly direct the Assessing Officer/TPO to exclude Infosys BPO Ltd. from the list of comparables for the purpose of computing the average margin. It was also brought to our notice that the Hon'ble Delhi High Court in ITA No. 260/2018 in the appeal filed by the Revenue against the aforesaid order dismissed the appeal at the admission stage observing that rationale given by the ITAT for exclusion was correct. In view of the aforesaid decision, we direct exclusion of Infosys BPO from the list of comparable companies chosen by the TPO. From above, it is clear that this company is functionally not comparable with captive service provider. Respectfully following the same we direct this company to be excluded from the list of comparables. 3. TCS e-Serve Ltd. Ld. AR submitted that this company has been objected by assessee for its functional dissimilarity as it renders both BPO and KPO services without segmental reporting. It is submitted that this company owns huge brand of TATA group and has also incurred brand related expenses and therefore cannot be accepted to be compared with a captive service provider like assessee. Ld. CIT DR on the contrary opposed its exclusion and place ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore we direct the AO/TPO to exclude this company from : list of comparables.' Since the appellant 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 this company from the list of comparable . It has been observed that this company is into high-end KPO services and an assessee rendering low end BPO services cannot be compared with it. Further, this company has been excluded due to absence of segmental information. Respectfully following aforesaid decision, we direct Ld. TPO to exclude this company from the list of comparables. 5. BNR Udyog Ltd. (segmental) Ld. AR submitted that this company fails RPT filter and also fails export filter applied by Ld. TPO. It is submitted that this company is into medical transcription, coding, business support services and e-governance projects and therefore functionally not similar with that of assessee. Ld. CIT DR however contended that this company is compared only for segment of medical transcription and therefore should not be excluded. She placed reliance upon decision of this Tribunal in case of Mobily Infotech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of the TPO for fresh consideration. In view of the factual matrix of the case on hand, as laid out above and following the decision of the co-ordinate Bench in the case of Indegene (P) Ltd. (Supra) which is also rendered on similar facts, we deem it appropriate to remand the matter of the comparability of this company, TCS E-serve Ltd. To the file of the TPO for fresh consideration in the light of out abov observations. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details/submissions in this regard. It is also been observed that similar view has been taken by decision of this Tribunal in case of M/s. Nielson Sports India Pvt. Ltd., vs. ACIT in IT(TP)A No. 196(B))/2017 vide order dated 28-06-2019. Respectfully following the same, we set aside this comparable back to Ld. TPO for considering it afresh. Needless to say that proper opportunity shall be granted to assessee as per law. Accordingly we set aside this comparable back to Ld. TPO 6. Excel Infoways Ltd. (segmental) This comparable selected by Ld. TPO is alleged to be functionally not comparable with assessee, as it is handling business relations and managing cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egard to employee cost and diminishing revenue of this company which takes it out of the comparability and these aspects have not been considered by the Tribunal in its order. On the above objections in the MA, the Tribunal held as follows:- 8. We have examined the contents in the misc. petition and we find that there has been omission to consider the application of employee cost filter by the Tribunal though attention of the Bench was invited to relevant pages pointed out in the misc. petition. We do not however agree with the assessee that functional comparability of this company has not been examined by the Tribunal in paragraph 14.4. The Tribunal has come to the conclusion that this company is a ITeS company and that cannot be reviewed in the misc. application. However there has been omission to adjudicated exclusion of this company on account of extraordinary events. We therefore recall the order of the Tribunal to the limited extent of examining of the employee cost filter and the presence of extraordinary events on warranty exclusion of this company. 3. We have heard the rival submissions on the exclusion of this company on the basis of extraordinary events that occurred dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der consideration made a statement under 133 (6) regarding allocating entire employee cost to IT-BPO segment, with no allocation to other segment, which amounts to almost 49% of its total revenue during the year under consideration. At this stage, we clarify that, we are not inclined to express our opinion regarding functional similarities/dissimilarity of this company with that of present assessee before us and the same is kept open to be considered in an appropriate case. We therefore agree with contention raised by assessee regarding this comparable not satisfying employee cost filter. Respectfully following aforestated decision of Delhi Tribunal reproduced hereinabove, we direct Ld. TPO to exclude this comparable from the final list. Comparable sought for inclusion: 7. Informed Technologies India Ltd. It has been submitted by Ld. AR that this company is functionally comparable with that of assessee and submits that it passes through all filters applied by Ld. TPO. It has been submitted that this comparable was included by Ld. TPO which was acceptable to assessee. However DRP directed to exclude the same, as there was no segmental detail available. Ld. CIT DR however placed reli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4956/2017. It has been submitted by Ld. Counsel that outstanding receivables are closely linked to main transaction and so the same cannot be considered as separate international transaction. He also submitted that into company agreements provides for extending credit period with mutual consent and it does not provide any interest clause in case of delay. He also argued that the working capital adjustment takes into account the factors related to delayed receivables and no separate adjustment is required in such circumstances. 11. On the contrary Ld. CIT DR submitted that interest on receivables is an international transaction and Ld. TPO rightly determined its ALP. In support of his contentions, he read out relevant parts of DRP's direction, in which Panel relying upon decision of Delhi Tribunal order in Ameriprise India Pvt. Ltd. vs. ACIT (2015-TII-347-ITAT-DEL-TP) held that interest on receivables is an international transaction and the transfer pricing adjustment is warranted. He stated that Finance Act, 2012 has inserted Explanation to Section 92B, with retrospective effect from 1.4.2002 and sub-clause (c) of clause (i) of this Explanation provides that: (i) the expressi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder-charging of interest on excess period of credit allowed to AEs for realization of invoices, amounts to an international transaction and ALP of such international transaction has to be determined by Ld. TPO. In so far as charging of rate of interest is concerned, he relied on decision of the Hon'ble Delhi High Court in CIT vs. Cotton Naturals (I) Pvt. Ltd. (2015) 276 CTR 445 (Del) holding that currency in which such amount is to be re-paid, determines rate of interest. He, therefore, concluded by summing up that interest on outstanding trade receivables is an international transaction and its ALP has been correctly determined. We have perused the submissions advanced by both the sides in the light of the records placed before us. This Bench referred to decision of Special Bench of this Tribunal in case of Special Bench of ITAT in case of Instrumentation Corpn. Ltd. v. Asstt. DIT in ITA No. 1548 and 1549 (Kol.) of 2009, dated 15-7-2016, held that outstanding sum of invoices is akin to loan advanced by assessee to foreign AE., hence it is an international transaction as per explanation to section 92B of the Act. We also perused decision relied upon by Ld. Counsel. In our cons ..... 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