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TMI Blog2021 (7) TMI 756X X X X Extracts X X X X X X X X Extracts X X X X ..... & 651/Bang/2017 - - - Dated:- 11-3-2021 - Shri N.V. Vasudevan, Vice President And Shri B.R. Baskaran, Accountant Member For the Appellant : Shri K.R. Vasudevan, A.R. For the Respondent : Shri Pradeep Kumar, D.R. ORDER PER B.R. BASKARAN, ACCOUNTANT MEMBER: Both the appeals filed by the assessee are related to assessment year 2012-13. 2. At the time of hearing, the Ld. A.R. submitted that the A.O. had passed a rectification order u/s 154 of the Income-tax Act,1961 ['the Act' for short] after passing of the final assessment order for assessment year 2012-13. In the original assessment order, the AO did not give effect to the directions given by Ld Dispute Resolution Panel (DRP) and the same was given effect to in the rectification order passed u/s 154 of the Act. Hence, out of abandoned caution, the assessee has preferred appeals against both the orders. The appeal filed against the order dated 31.1.2017 passed u/s 154 of the Act is numbered as IT(TP)A No.651/Bang/2017. The appeal numbered as IT(TP)A No.627/Bang/2017 is directed against the final assessment order dated 31.1.2017 passed by the A.O. He submitted that the issues contested by the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided IT enabled services to its Associated Enterprises. The A.O. made Transfer pricing adjustment of ₹ 17.40 crores in respect of Certification service segment and ₹ 26.14 lakhs in respect of ITES segment aggregating to ₹ 17.66 lakhs. After the DRP s direction, the aggregate amount of transfer pricing adjustment came to be enhanced to ₹ 25.46 crores. The assessee is challenging above said TP adjustments made in both the segments. 7. With regard to Transfer Pricing adjustment made in respect of Certification Service Segment, the Ld A.R submitted that an identical issue was examined by the co-ordinate bench in the assessee s own case in AY 2009-10 in IT(TP)A No.291/Bang/2014 dated 20-09-2019 and the matter was restored back to the file of AO/TPO with a set of directions for examining is afresh. 8. We heard Ld D.R on this issue and perused the record. We notice that the co-ordinate bench has restored an identical issue in AY 2009-10 to the file of AO/TPO with following observations:- 14 We have heard the rival submissions. The ld. counsel for the assessee submitted that the law with regard to treating foreign exchange loss/gain as part of operating pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, the ld. DR pointed out that in carrying out the certification services the assessee had sub-contracted part of the work to the AE and paid ₹ 3,60,48,227. It has to be examined as to whether such a payment will have any impact on the payments received by the assessee from AE for rendering certification services. 16 We have given a careful consideration to the rival submissions and are of the view that the issue with regard to determination of ALP in the certification services segment should be remitted back to the TPO. Accordingly, the issue is restored back to the TPO for fresh consideration with the following directions:- (1) The foreign exchange loss/gain to the extent it relates o revenue items and are directly related to certification services rendered by the assessee should be considered as part of the operating profit or loss, as the case may be. The law in this regard is well settled by the decision rendered by the ITAT Bangalore Bench in the case of SAP Labs (supra) and Auto Desk India Pvt. Ltd. Vs. DCIT IT(TP)A.No.540 541/Bang/2013. (2) The TPO should restrict the addition only in respect of international transactions with the AE. However, the submiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 TCS 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% 11. Before Ld DRP, the assessee sought exclusion of following five comparable companies:- (a) Universal Print Systems Ltd (b) Infosys BPO Ltd (c) BNR Udyog Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the orders of the authorities below. According to the ld DR, in similar facts and circumstances a co-ordinate bench in the case of CGI Information Systems Management Consultation Pvt. Ltd., in IT(TP)A No.183/Bang/2017 dated 11/4/2018 for asst. year 2012-13, at para 47 to 52 thereof has remanded back the issue of comparability analysis at the segmental level to the file of the TPO for examination and verification of the assessee's claim. It is prayed that the same be followed in this case also. 6.3.1 We have heard the rival contentions and perused and carefully considered the factual material on record; including the judicial pronouncements cited. In the facts and circumstances of the case, as narrated above, we are of the considered view that on similar facts, as in the case on hand a co-ordinate bench of this Tribunal in the case of CGI Information Systems and Management Consultation Pvt. Ltd., also for asst. year 2012-13 (Supra), has remanded the issue of comparability analysis at the segmental level to the file of the TPO for examination and verification, by holding as under at paras 47 to 52 as thereof:- 47. The next submission of the learned counsel for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 pre press 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 Assessee reiterate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f sub-rule (1), the comparability of an international transaction with an uncontrolled transaction 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 IT(TP)A No.2055/B/16 competition and whether the markets are wholesale or retail. (3) An uncontrolled transaction shall be comparable to an international transaction if-- (i) none of the differences, if any, betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 regarded 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. 6.3.2 Respectfully following the decision of the co-ordinate bench in the case of CGI Information Systems and Management Consultants Pvt. Ltd., also for asst. year 2012-13, to which one of IT(TP)A No.2055/B/16 us is party, we remand the issue of the comparability of this company; Universal Print Systems Ltd., back to the file of the TPO for examination and verification of issues raised by the assessee of functional comparability and employees cost filter of 25% at segmental level, which the AO may gather information u/s 133(6) of the Act. Needless to add the assessee shall be afforded adequate opportunity of being heard and to file details/submissions required, which shall be duly considered by TPO before deciding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f CGI Information Systems Management Consultants Pvt. Ltd., for asst. year 2012-13, we hold and direct that M/s Infosys BPO Ltd., be excluded from the final set of comparables. 8. BNR Udyog Ltd ., (Seg- Medical Transcription) 8.1 The ld AR for the assessee submitted that BNR Udyog Ltd., (Seg - Medical Transcription) ('BNR') should be rejected and excluded from the final set of comparables for the following reasons:- (i) Functionally Different According to the ld AR for the assessee, this company 'BNR' is functionally different as it is engaged in multiple business lines, i.e IT ITES, e-governance and construction activities. (ii) Fails the RPT filter of 25% on entity basis as segmental transaction details of medical transcription are not available. (iii) Incorrect Margin Computation Without prejudice, the ld AR submits that as per segmental information the medical transcription segment has earned revenues of ₹ 147.40 lakhs whereas in Notes 2-19, sub schedule to the profit and loss account, revenue from medical transcription services is shown at ₹ 138.55 lakhs The margins therefore need to be corrected. 8.2 The ld DR f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Indegene Pvt. Ltd., for A.Y. 2012-13 (Supra) to which one of us is party, and considering the factual matrix involved, that how much RPT pertains to the medical transcription has not been determined by either the TPO OR the assessee, we deem it appropriate and proper to remand the issue of comparability of this company, M/s BNR Udyog Ltd., to the file of the TPO for determination afresh in line with the observations above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file details/submissions in this regard, which shall be duly considered by the TPO before deciding the issue. The TPO is accordingly directed. 9. TCS E-serve Ltd ., ('TCS') 9.1 Before us, the ld AR for the assessee submitted that this company TCS EServe Ltd ('TCS') should be rejected and excluded from the final list of comparables for the following reasons:- (1) Functionally different The assessee contends that this company deals with various verticals of business, ie., it renders BPO services to customers in the Banking, Financial services and Insurance domain, and also provides high end KPO services and theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany, M/s Excel Infoways Ltd., ('Excel') should be rejected and excluded from the list of comparables for the following reasons:- (i) Fails employee cost filter of 25% The ld AR submitted that in the segmental report, the details relating to employee cost allowable to each segment is not available and therefore the filter is to be applied at the entity level, where it fails the employee cost filter of 25% since its Employee Cost/Operating revenue is approx 13.05%. (iii) Peculiar Economic Circumstances It is submitted that as per the Annual Report of this company, 'Excel', it has peculiar economic conditions impacting the earnings of the year under consideration and consequent abnormal volatility in profits. In support of the assessee's contentions for exclusion of this company from the list of comparables, the ld AR placed reliance, inter alia, on the decisions of co-ordinate Bench of the tribunal in the case of CGI Information Systems Management Consultations P Ltd., for AY 2012-13 (supra) and of ITAT Delhi in the case of M/s Baxter India P Ltd V ACIT in ITA No. 6158/Del/2016 for A.Y. 2012-13. 10.2 Per contra, the ld DR for Revenue support ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ile details/submissions required, which shall be duly considered by the TPO before deciding the issue. We notice that the co-ordinate bench has directed exclusion of M/s Infosys BPO Ltd and remanded the remaining four comparable companies to the file of AO/TPO. Consistent with the view taken in the above said case, we direct exclusion of M/s Infosys BPO Ltd and remand the remaining four comparable companies to the file of AO/TPO with similar directions. 13. Before Ld DRP, the assessee sought inclusion of six companies and said plea was rejected by Ld DRP. Though the assessee has raised a ground seeking inclusion of six companies in Ground No.21, the Ld AR submitted that the assessee would seek inclusion of only one company, viz., M/s Crystal Voxx Ltd. He submitted that this company has been held to be a good comparable in the case of Kennametal Shared Services P Ltd (supra). 14. We heard Ld D.R on this issue and perused the record. The co-ordinate bench, in the case of Kennametal Shared Services P Ltd (supra) has directed inclusion of M/s Crystal Voxx Ltd as a comparable company. We notice that the co-ordinate bench in the above said case has followed the decision rendere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no valid explanation for claiming expenses related to the CAS services rendered by the Assessee when recognition of income there from is postponed. The change in the method of accounting was therefore not bonafide and was rightly rejected by the revenue authorities. We find no merit in the claim of the Assessee in this regard. The cases cited by the learned counsel for the Assessee are with regard to the right of an Assessee to change the method of accounting provided it is bonafide and is followed subsequently. Therefore the case laws cited are not discussed. Suffice it to say that the principle laid down in those cases are not applicable to the present case in view of the finding that the change in the method of accounting was not bonafide and proper. Gr.No. 15 to 18 are therefore dismissed. As far as Gr.No.19 raised by the Assessee which is to the effect that if the income recognition which is postponed in this year is considered as revenue for the current year, then the AO should allow consequential benefit in the subsequent year in which the same income has been offered to tax, we are of the view that the Assessee is at liberty to pursue remedies available to it in law and th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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