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TMI Blog2023 (4) TMI 520X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of ITES as per Rule 10A of the Income Tax Rules, 1962 does not include Placement and recruitments Services . We are therefore of the view that the addition made on account of transfer pricing should be set aside to the AO/TPO for a fresh analysis considering assessee as Placement and HR Consultancy Service provider. The AO/TPO will do a fresh analysis as stated above after due opportunity to the assessee of being heard. Whether TPO has grievously erred in ignoring the margin analysis prepared by the assessee for its AE exports business and non-AE domestic business to unrelated parties? - This is a fundamentally faulty way of assessing the Arms Length Price ( ALP ) of the international transactions undertaken by the assessee with AEs since the Revenue transactions with AE constitute only 0.75% of the total Revenue from Operations earned by the assessee and expenditure transactions with AE constitute only 0.62% of total expenses incurred. Hence, to apply TNMM on an overall basis at the entity level is against the basic canons of transfer pricing law. Assessee had already furnished to the TPO that the net operating margin analysis of the AE and non-AE segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s.143(3) of the Act - HELD THAT:- As it is not disputed that as per the decision rendered in the case of CHECKMATE SERVICES PVT LTD [ 2022 (10) TMI 617 - SUPREME COURT ] decided the issue on allowability/treatment of delayed Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s.43B and is therefore not lost totally. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on delayed receivables 6. Adjustment to services rendered Rs.5,96,82,063/-: The assessee provided human resource services to business organizations like temporary staffing, permanent placement, career placement, career transition, outsourcing managed service programs, recruitment process outsourcing and talent development. The assessee provided the above services to its Associated Enterprise (AE). Therefore, in terms of section 92 of the Act, the assessee has to justify that the consideration received by the assessee for services so provided were at Arm s Length. The documentation maintained by the assessee under section 92D of the Act was submitted to the TPO on 26th July 2021 in response to notice issued by the TPO dated 21st July 2021. This documentation contained profile of the Assessee and the group, nature of transactions entered into the Associated Enterprises (AEs), FAR analysis, detailed economic data analysis conducted by the Assessee on the Prowess database, reasons for selection of Most Appropriate Method ( MAM ) and such other information prescribed in Rule 10D of the Income tax Rules, 1962 (hereinafter called the Rules ). 7. The TPO rejected the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Computer software , Business Services Consultancy and Other Consultancy instead of searching for Placement HR Consultancy Service which is the business of your appellant. The DRP has erred in upholding this view of the TPO. 3. The learned TPO and DRP has grievously erred in ignoring the margin analysis prepared by your Assessee for its AE exports business and domestic business to unrelated parties. The TPO has grievously erred in applying TNMM on an overall basis at the entity level though detailed workings and supporting documents were made available to the TPO. The DRP has erred in upholding this action of the TPO. 4. The learned TPO has grievously erred in rejecting all the 16 companies selected by your Assessee in its TP documentation maintained u/s 92D as comparable to its business. No reason has been given for exclusion of these companies as comparable. The DRP has erred in not adjudicating on this matter. 11. As can be seen from ground No.2, the main grievance of the assessee is that the TPO considered the assessee as ITeS company whereas the assessee is only a human resource provider. The TPO has erred in making a search for the keywords ITES , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resh analysis considering assessee as Placement and HR Consultancy Service provider. The AO/TPO will do a fresh analysis as stated above after due opportunity to the assessee of being heard. 17. The connected grievance of the assessee is that TPO has grievously erred in ignoring the margin analysis prepared by the assessee for its AE exports business and non-AE domestic business to unrelated parties. The TPO has grievously erred in applying TNMM on an overall basis at the entity level though detailed workings and supporting documents were made available to the TPO. The grievance is projected in ground No.3 raised before the Tribunal. 18. In this regard, we find that the assessee had entered into various transactions with its AEs during the year. The Assessee had adopted the MAM applicable for each type of transaction separately as listed out appropriately against the type of transaction as per the documentation maintained under section 92D of the Income tax Act, 1961. The reason for adopting each of the method is given in detail therein. The TPO rejected the ALP determined by the assessee and the MAM adopted by the assessee for each of the transaction and instead adopt TNMM a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal because we will not be in a position to get information about the comparables at transaction level and hence, no comparison can be carried out at the transaction level. The DRP has also stated further in para 2.3.4 that Even as per TP study of the assessee there is no segregation of profits between the AE transactions and non-AE transactions. The assessee has not computed the margins for the AE transactions which are reliable. Hence it is not possible to arrive at net profits for AE and non-AE transactions separately. 25. These observations of the Hon ble DRP are factually incorrect as the assessee had filed the net operating margin analysis of the AE and non-AE segment in its documentation maintained u/s 92D of the Income tax Act, 1961. A certified statement of the same was subsequently filed before the Hon ble Panel on 3rd and 10th June 2022. (Pages 3726-3728 of paper book 9). 26. It is relevant to note the provisions of Rule 10B(1)(e) of the Income Tax Rules, 1962 ( the Rules ) which provides for the manner of determination of ALP of an international transaction while applying TNMM that reads as under: [10B. Determination of arm s length price under section 92C. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... several countries, voices out the same principle of benchmarking only the profitability of the international transactions and not the profitability of the whole company. 29. The Hon ble Mumbai High Court in the case of CIT vs. Thyssen Krupp Industries India Pvt. Ltd. [2016] 70 taxmann.com 329 (Bombay), wherein the Hon ble High Court observed as under: ....... We find that in terms of Chapter X of the Act, re-determination of the consideration is to be done only with regard to income arising from International Transactions on determination of ALP. The adjustment which is mandated is only in respect of International Transaction and not transactions entered into by assessee with independent unrelated third parties. This is particularly so as there is no issue of avoidance of tax requiring adjustment in the valuation in respect of transactions entered into with independent third parties. The adjustment as proposed by the Revenue if allowed would result in increasing the profit in respect of transactions entered into with non- AE. This adjustment is beyond the scope and ambit of Chapter X of the Act. 30. Likewise, the Hon ble Co-ordinate Bench, Bangalore, in the case of G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground No.3 raised by the assessee and direct the AO/TPO to consider the margin analysis as provided by the assessee relating to AE segment alone. In view of the decision on ground Nos.2 and 3, grounds 4 to 20 raised by the assessee become academic and hence not adjudicated. Grounds 21-24: Interest on delayed receivables Rs.58,30,967/- 34. The grievance of the assessee on Grounds 21 to 24 is that the TPO has grievously erred in computing interest of Rs.9,18,58,103/- which was subsequently reduced to Rs.31,90,006/- vide TPO order dated 01/10/2021 on delayed trade receivables. This was further increased to Rs.58,30,967/- by the TPO while giving effect to the order of the DRP by not netting off amount due as payables to AE though this was done in the order u/s 92CA dated 29th July 2021. The TPO held that delay in realizing the receivables from the AE is one form of shifting profits from India and was an international transaction and ALP has to be computed for such delay in realization of receivables from the AO. The TPO computed interest on delayed receivables in the following manner: 25.2 The taxpayer has furnished the details of receivables realised during FY 2017-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Hence, the delay of 335 days as computed by the TPO is wrong. 2 Wrong rate of interest considered Without prejudice to the submission that no adjustment is required, the DRP had held that interest has to be computed at rates applicable for short term deposits. In the view of the appellant, six months USD LIBOR plus 200 basis points will be an appropriate rate that can be considered for computation of interest. This works out to only 3.318%. The TPO has not given any workings for the interest computation of Rs.58,30,967/- computed by him in the OGE order to DRP directions. 36. It was contended that the TPO has wrongly applied an allowable credit period of 30 days for the assessee. The generally accepted credit period in the absence of agreed credit period is 90 days and this norm has been overlooked. It was contended that as per Rule 10CB of the Income tax Rules, 1962, the allowable time limit for repatriation of excess money or part thereof on primary TP adjustment is 90 days and hence there is no basis for the TPO to consider 30 days as normal credit period. Though arguments were advanced that delay in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above issue, it is not disputed that as per the decision of the Hon ble Supreme Court rendered in the case of CHECKMATE SERVICES PVT LTD VS CIT-1 in CIVIL APPEAL 2833/2016 vide its judgment dated 12 October 2022 decided the issue on allowability/treatment of delayed Employee PF Contribution payment in hands of assessee under provisions of Income Tax Act and held that Section 36(1)(va) and Section 43B(b) operate on totally different equilibriums and have different parameters for due dates, i.e., employee's contribution is linked to payment before the due dates specified in the respective Acts and employer's contribution is linked to the payment before the prescribed due date for filing of return u/s. 139(1) of Income Tax Act, 1961.The result of any failure to pay within the prescribed dates also leads to different results. In the case of employee's contribution, any failure to pay within the prescribed due date under the respective PF Act or Scheme will result in negating employer's claim for deduction permanently forever u/s.36(1)(va). On the other hand, delay in payment of employer's contribution is visited with deferment of deduction on payment basis u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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