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TMI Blog2021 (10) TMI 1391X X X X Extracts X X X X X X X X Extracts X X X X ..... #39;ble High Court of Delhi KUSUM HEALTH CARE PVT. LTD. [ 2017 (4) TMI 1254 - DELHI HIGH COURT] we are of the considered view that the figure of receivables mentioned elsewhere do not reflect a pattern and, as held the assessee has already fettered the impact of receivable on the working capital which has been accepted by the DRP - we direct the Assessing Officer/TPO to delete the addition. Assessee appeal allowed. - ITA No. 6815/DEL/2015 - - - Dated:- 1-10-2021 - SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER For the Assessee : Shri G.C. Srivastava, Adv. Shri Mayank Patwari, Adv For the Revenue : Shri Surenderpal, CIT-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER This appeal by the assessee is preferred against order dated 29.06.2021 framed u/s 143(3) r.w.s 144C(13) r.w.s 144B of the Incometax Act, 1961 [hereinafter referred to as 'The Act'] pertaining to A.Y. 2016-17. 2. The grievances of the assessee read as under: 1. That on the facts and in the circumstances of the case and in law, the Hon ble Dispute Resolution Panel ( DRP )/ Learned Assessing Officer ( AO )/ Learned Transfer Pricing Officer ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ongly treating the accounts receivable as medium term loan computed at 6 months USD Libor + 400 bps. 7. The Ld. AO/Ld. TPO erred in facts and in law by failing to give effects to directions passed by DRP in margin computation and interest computation on accounts receivable. 8. That the Ld. DRP/Ld. AO/Ld. TPO erred in facts and in law in initiating penalty proceedings under section 274 read with 271(1)(C) of the Act. That the above grounds are independent and without prejudice to each other. The Appellant craves leave to add, amend, alter, delete, rescind, forgo or withdraw any of the above grounds of objection either before or during the course of proceedings in the interest of the natural justice 3. In addition to the above grounds taken in the appeal memo, the assessee has raised the following additional grounds of appeal: 1. That on the facts and circumstances of the case and in law, the Learned ('.'Ld. ) Dispute - Resolution Panel ( DRP )/ Ld. Assessing Officer ( AO )/Ld. Transfer Pricing Officer ( TPO ) erred in computing operating margin (operating profit/operating cost) of the Appellant by: Treating foreign exchange gain/loss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is registered with the Software Technology Park of India [STPI] and is an IT enabled support service provider rendering information technology enabled services related to IP Administration/renewal and data management services, proof reading support, customer support services etc. The assessee caters exclusively to the service needs of its group companies and does not provide service to any third party customers. 6. During the year under consideration, the assessee has undertaken the following international transactions: Nature of transactions Method Value (Rs.) Provision of 1TES TNMM using Operating profit 810259233 Reimbursement of expenses to AEs 5929073 Payment of interest on ECB CUP 1467823 Reimbursement of expenses from AEs CUP 20377465 7. The assessee selected TNMM as the most appropriate method and net cost and margin i.e. operating profit/operating cost as profit level indicator and the same has been accepted b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erve Ltd 9. Adopting average of 29.53%, the TPO recomputed the operating margin as under: S. No. Company Name OP / TC (%) 1 ICRA Techno Analytics Limited 25.24% 2 Jindai Intellicom Ltd. 13.70% 3 Acropetal technologies Limited(Seg) 14.36% 4 e4e Healthcare Business Services Pvt 9.77% 5 Accentia Technologies Ltd. 29.18% 6 Eclerx Services L td. 56.82% 7 Infosys B P 0 Ltd. 17.86% 8 T C S E-Serve Ltd. \X 69.31% AVG 29.53% 10. Before us, the ld. counsel for the assessee has argued only for exclusion of two comparables, namely E-clerx Services Ltd and TCS EServe Ltd. It is the say of the ld. counsel for the assessee that in the immediate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing domain specific reengineering expertise in partnership with financial services firms to increase control and execute ongoing functions. It is also providing consulting, business analysis and solution testing services which provides a broad suite of services that allows its clients to operate on day-to-day basis including trade processing, reference data, accounting finance and expense management activities. Similarly, under sales and marketing services segment, as has been described at page 767 of the annual report paper book, Eclerx provides web content management merchandising execution, web analytics, social media moderation and analytics, search engine analytics support, CRM platform support, lead generation, supply chain and channel analytics, price catalogue competitive intelligence etc. 16. Coordinate Bench of the Tribunal in case of Ameriprise India Pvt. Ltd. in ITA No.2010/Del/2014 held that Eclerx is having significant intangibles to provide KPO services whereas the taxpayer on the other hand is a captive ITES service provider on cost plus mark-up model with minimal risk. Operative part of the order of the coordinate Bench of the Tribunal is as under :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e vis- - vis captive service provider by the coordinate Bench of the Tribunal in Ariba India Pvt. Ltd. vs. DCIT ITA No.5201/Del/2012. 22. So, in view of what has been discussed above, we are of the considered view that Eclerx is not a suitable comparable vis- -vis the taxpayer, hence ordered to be excluded. 23. The taxpayer south exclusion of TCS E-Serve on grounds of functional dissimilarity; providing services predominantly to Citi Group; having high turnover and presence and payment for band; segmental information not available; having abnormal profitability trend and relied upon the decision of Hon ble Delhi High Court in Avaya India Pvt. Ltd. vs. ACIT in ITA 532/2019, decisions of coordinate Bench of the Tribunal in case of Ariba India Pvt. Ltd. vs. DCIT ITA No.876/Del/2015, and Baxter India Pvt. Ltd. in ITA No.6185/Del/2016. 24. However, on the other hand, ld. DR for the Revenue drew our attention towards findings given by the ld. DRP at pages 22 23 of its order and thereby relied upon the DRP findings. 25. When we examine functional profile of TCS E-Serve at page 903 of the paper book which shows that TCS E-Serve is into providing services from vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both these companies as unsuitable comparables. 28. The Director s report of TCS E-Serve Limited bears out the contention of the Assessee that both entities have been leveraging TCSs scale and large client base to increase their business in a significant way. The submission that the two comparables offer an illustration of an identical transaction being conducted in an uncontrolled manner overlooks the effect of the Tata brand on the performance of the impugned comparables. The question was not merely whether the margins earned by the Tata group in providing captive service to the Citi entities were at arm s length. The question was whether they offered a reliable basis to re-calibrate the PLI of the Assessee whose scale of operations was of a much lower order than the two impugned comparables. The mere fact that the transactions were identical was not, in terms of the law explained in the above decisions, either a sole or a reliable yardstick to determine the opposite choice of comparables. 29. For all of the aforementioned reasons, the Court finds merit in the contention of the Assessee that both the impugned comparables viz., TCS E- Serve Limited and TCS E-Serve I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that since it was agreed that the debts should be repaid within 45 days and hence there is a delay in recovering debts. The TPO was of the opinion that interest rate of 11.69% would be arm s length of level of interest that needs to be charged for deemed loans advanced for the period of receivables outstanding beyond the period stipulated in the service agreement/invoice and proposed an adjustment of Rs. 1,53,65,454/-. 17. Objections were raised before the DRP and it was strongly contended that working capital adjustment take into account the impact of outstanding receivables and in the alternative, it was pleaded that internal CUP LIBOR + 200 basis points should be applied for such computation. 18. The DRP agreed and granted working capital adjustment and application of internal CUP i.e. Libor + 200 basis points. 19. Before us, the ld. counsel for the assessee vehemently stated that the interest on outstanding receivables is not a financial debt but an operating debt which can be bench marked only on working capital adjustment which already takes into account all debts arising out of operations of a company. Strong reliance was placed on the decision of the Hon'ble H ..... X X X X Extracts X X X X X X X X Extracts X X X X
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