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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 ..... e 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 assessee in both the appeals are identical in nature. 3. In view of the above discussed facts, one of the appeals shall become infructuous. Since the demand has been enhanced in the order passed u/s 154 of the Act, we adjudicate the grounds urged therein and accordingly dismiss the appeal numbered as IT(TP)A No.627/Bang/2017 as infructuous. 4. The Ld. A.R. has furnished notes to arguments. According to the same, all the grounds urged by the assessee relate to the following issues:- a) Transfer Pricing adjustment under "Certification service segment". b) Transfer Pricing adjustment under "ITES segment". c) Addition on account of change in the method of revenue recognition d) Denial of TDS credit. e) Non-granting of depreciation on foreign exchange loss. 5. The assessee is an Indian company and is a subsidiary of M/s. Underwriters Laboratories Inc., U.S.A. The assessee herein provides product safety testing and certification services. The above said services have been titled as "Conformity Assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The ld. counsel for the assessee submitted that the law with regard to treating foreign exchange loss/gain as part of operating profit/loss has been well settled in several decisions and in this regard relied on the decision of ITAT Bangalore Bench in the case of SAP Labs India (P) Ltd. (supra). He submitted that the TPO while computing Profit Level Indicator (PLI) of the assessee in the certification services segment, has included certain items of expenses, whereas the assessee has excluded those expenses as being extra-ordinary in nature and not having impact on the operating margin of the assessee. These objections, however, were not met by the DRP, despite submissions made by the assessee before the DRP. Thirdly, it was submitted that as far as Bangalore Benches of the Tribunal are concerned, the threshold limit for application of RPT filter for excluding comparable companies, should be 15% of the total revenue being with related parties and in this regard placed reliance on the decision rendered in 24/7 Customer Pvt. Ltd. (ITA No.227/Bang/2010), Sony India Private Ltd. reported in (2009) 315 ITR (80) 150 (Del.) wherein it has been held that comparables having RPT of up to 15 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO should restrict the addition only in respect of international transactions with the AE. However, the submission made by the ld. DR with regard to a part of the certification services having been subcontracted to the AE and receipt of sub-contracting charges from the AE to the extent the same will have impact on the consideration received from the AE for rendering the certification services should also be examined by the TPO. (3) Errors, if any, in the computation of margins of comparables should be looked into by the TPO in the set aside proceedings. (4) Threshold limit for applying RPT filter should be 15% or 25% of sales depending upon the availability of comparable companies after all exclusions as held by the Tribunal in the case of Auto Desk India Pvt. Ltd. Vs. DCIT [2018] 96 taxmann.com 263 (Bang.Trib.) [para 24 to 25]. 17 The above directions will be sufficient to take care of the grievances projected by the assessee in ground Nos. 5 & 6 and additional grounds No.6 (d), 26 & 27. The TPO will afford opportunity of being heard to the assessee before deciding the issue." 9. We also notice that the decision rendered by the co-ordinate bench in AY 2009-10 has been f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inate bench in the case of Mobility Infotech India P Ltd (supra) in respect of above said five comparable companies:- 6. Universal Print Systems Ltd., (seg: BPO) 6.1 The ld AR for the assessee submitted that this company should be rejected as a comparable for the following reasons. (i) Fails the employees cost Filter IT(TP)A No.2055/B/16 According to the ld AR, this company fails the employee filter of Rs. 25% applied at the entity level. The employee cost filter of the assessee works out to 18.56% (viz. employee cost of Rs. 5,27,11,884/- / by total operating revenue of Rs. 28,40,79,094/-). It is submitted that since details relating to employee cost allowable to specific segments is not available, the same is taken at entity level. (ii) Functionally different The ld AR submits that as per page 69 of its Annual report, this company is engaged in pre-press services and as pre-press activity is connected to the printing industry/process, it is not comparable to call entire services rendered by the assessee. Therefore, it requires to be rejected as a comparable to the assessee since it is functionally different from companies providing ITES. In support of this proposition, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from non-financial service income. The Assessee pointed out that the percentage of income from ITES was only 21.63% of the total revenue from operations of this company as per its annual report. The Assessee also pointed out that in the Pre-press BPO segment this company was providing integrated print solutions to its customers, which includes scanning, design/layout, trapping, hand-outlined clipping path and image masking and magazine and catalogue publishing. The Assessee submitted that the aforesaid services are not in the nature of ITES. The Assessee pointed out that as per the safe harbor rules introduced by the CBDT ITES has been defined as business process outsourcing services provided mainly with the assistance or use of information technology. It was also submitted that this company does not satisfy the definition of ITES as contained in Rule 10TA(e ) of the Rules. Since use of information technology is absent in the various services provided by this company, it cannot be regarded as ITES company. The Assessee also submitted that this company fails the employee cost filter. The employee cost filter requires that the employees cost incurred by the company must be more tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following manner, namely :-- (a) to ( d) ....... (e) transactional net margin method, by which,-- (i)the net profit margin realised by the enterprise from an international transaction entered into with an associated enterprise is computed in relation to costs incurred or sales effected or assets employed or to be employed by the enterprise or having regard to any other relevant base; (ii)the net profit margin realised by the enterprise or by an unrelated enterprise from a comparable uncontrolled transaction or a number of such transactions is computed having regard to the same base; (iii)the net profit margin referred to in sub-clause (ii) arising in comparable uncontrolled transactions is adjusted to take into account the differences, if any, between the IT(TP)A No.2055/B/16 international transaction and the comparable uncontrolled transactions, or between the enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv)the net profit margin realised by the enterprise and referred to in subclause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v)the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied at the segmental level in TNMM. Therefore the objection with regard to this company failing the employee cost filter and service revenue filter in our view was rightly rejected by the TPO and DRP. It is however seen that this company has four segments viz., Repro, Label Printing, Offset Printing and Pre press BPO. Whether the label printing and offset printing segments supplement the functions performed in the Pre-press BPO segment has to be seen. We therefore set aside the order of the DRP in this regard and remand for fresh consideration by the TPO the comparability of this company. In terms of Rule 10B(3) of the rules the profit margins of Pre-Press BPO have to be adjusted taking into account the fact that two other segments supplement the pre-press BPO segment. If such adjustment cannot be reasonably or accurately made then this company has to be excluded from the list of comparable companies. The TPO for this purpose can use his powers u/s.133(6) of the Act to get required details from this company. As far as the argument that this company fails functional comparability, we find that none of the objections raised by the Assessee in this regard about lack of informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td., acquired the Portland Group PTY Ltd., which is an extraordinary event and could affect its comparability. In support of assessee's claim for rejection/exclusion of M/s Infosys BPO Ltd., from the list of comparables, the ld AR placed reliance on, inter alia, the decision of the co-ordinate bench in the case of (i) CGI Information Systems & Management Consultation Pvt. Ltd., in ITA No.183/Bang/2017 dated 11/4/2018 for asst. year 2012-13. 7.2 Per contra, the ld DR for revenue supported the orders of the authorities below in including this company in the final set of comparables. 7.3 We have heard the rival contention and perused and carefully considered the material on record; including judicial pronouncement cited. We find that on similar facts, a co-ordinate bench of this Tribunal in the case of CGI Information Systems & Management Controls Pvt. Ltd., for asst. year 2012-13 (Supra) directed that Infosys BPO Ltd., be excluded from the final list of comparables as it is not comparable with a company merely providing ITES, because of its brand value and extraordinary events in the previous years relevant to asst. year 2012-13 viz., the acquisition of an Australia based c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity of 'BNR' has been remanded to the file for the TPO for fresh consideration in tune with its observations at para 10.3.2 thereof, the relevant portion of which are extracted hereunder:- "Since in the year under consideration, there are 3 segments, how much of the RPT expenses pertain to each of the segments requires examination and we find that this aspect has not been analyzed by either the TPO or the assessee. While it is clear from the TPO's order that if the benchmarking is done only for the medical transcription segment, then the RPT pertaining to that segment only should be considered. However, since how much of the RPT pertain to the medical transcription segment has not been determined by either the TPO or the assessee, we deem it appropriate and proper to remand the matter of comparability of this company MIs BNR Udyog Ltd., to the file of the TPO for determination of the issue afresh in line with our observation above. Needless to add, the assessee shall be afforded adequate opportunity of being heard in the matter and to file submissions/details in this regard which shall be duly considered by the TPO before deciding the issue We hold and direct accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rendered by this company, M/s TCS E-serve Ltd, are high end KPO services, it has not brought out as to which of these are the services that would come under Technical services. On the other hand, we also notice that the TPO has held all the services rendered by the assessee to be BPO services with any proper analysis. In this factual matrix of the case, we find that on similar facts, the co-ordinate bench of ITAT-Bangalore in the case of Indegene Pvt Ltd for A.Y. 2012-13 (supra) has remanded the matter of comparability of this company 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 M/s Indegene Pvt 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 our above observations. Needless to add, the TPO shall afford the assessee adequate opportunity of being heard and to file details/submissions in this regard. 10. Excel Infoways Ltd (Seg-IT/BPO) ('Excel') 10.1 The ld AR for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a comparable since the coordinate Bench observed that the assessee in that case had not led or filed any evidence to support its contention that this company 'Excel' had failed the employee cost filter. These two decisions (supra), in our view, would not apply to the fact situation prevailing in the case on hand. 10.3.2 In the case on hand, from a careful perusal of the factual material before us, we find that the assessee's contentions that this company, 'Excel' had failed the employee cost filter of 25% has not been examined, either by the TPO or admittedly by the assessee, at the segmental level. Similar is the position with regard to volatility of profits/peculiarity of economic circumstances. In this view of the matter, we deem it appropriate to remand the issue of comparability of this company, M/s Excel Infoways back to the file of the TPO for examination and verification of the assessee's contentions on the issue of abnormality of profits and of failing of the employees cost filter of 25% at segmental level, for which the AO may gather information u/s 133(6) of the Act. Needless to add, the assessee shall be afforded adequate opportunity of bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ang/2016 & 459/Bang/2017 company because the only reportable segment of this company was BPO. We direct the TPO to include this company as a comparable company." Following above said decisions of co-ordinate bench, we direct inclusion of M/s Crystal Voxx Ltd as a comparable company. 15. The next issue relates to the addition made rejecting the claim of change in method of revenue recognition. The Ld A.R fairly admitted that this issue has been decided against the assessee by the co-ordinate bench in AY 2009-10 (referred supra). We notice that this issue has been decided against the assessee by the coordinate bench in AY 2009-10 with the following observations:- "36. We have considered the rival submissions and are of the view that the conclusion of the DRP in this regard deserves to be upheld. It is no doubt true that the Assessee is at liberty to change the method of accounting provided the change in the method of accounting is bonafide and is being consistently followed subsequently. But the method followed by the Assessee in the present case of postponing revenue recognition without postponing the cost incurred for earning the revenue cannot be said to be proper. There is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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