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2020 (9) TMI 1 - ITAT DELHITP Adjustment - comparable selection - TPO re-characterized the business of the assessee and held the assessee to be a KPO service provider - HELD THAT:- We do not agree with the act of re-characterization of the assessee to be a KPO by the TPO in view of the fact that Hon’ble Delhi High Court in the case of Rampgreen Solutions P Ltd [2015 (8) TMI 931 - DELHI HIGH COURT] has observed that the expression "knowledge process outsourcing" indicates the involvement of domain knowledge in providing ITeS. Typically, knowledge process outsourcing includes involvement of advance skills; the services provided may include analytical services, market research, legal research, engineering and design services, intellectual management, etc. We further find that Co-ordinate Bench of the Tribunal in assessee’s own case for A.Y. 2010-11 has held the characterization of the nature of service rendered by the assessee to be “high-end ITES services”. Assessee is engaged in providing Information Technology Enabled Services (ITES) to its Associated Enterprises (AEs) and is a subsidiary of Smart Cube Ltd., UK. thus companies functionally dissimilar with that of assessee need to be deselected from final list. Computing of operating margins - HELD THAT:- We find that in the case of Fiserv India Pvt. Ltd. . [2016 (1) TMI 1276 - DELHI HIGH COURT]after considering that various decisions cited in the order has held the foreign exchange gain/loss to be an operating item and therefore could not be excluded from the computation of the operating margins. - we direct the TPO/ AO to consider foreign fluctuation income to be operating in nature while working out the profit margin of the assessee. Sundry balances written back as part of operating income - HELD THAT:- We find that the Co-ordinate Bench of the Tribunal in the case of Suessen Asia Pvt. Ltd. [2017 (10) TMI 1440 - ITAT PUNE] after relying on the various decisions cited in the order, has held that the sundry balances written back to the part of operational item. Before us, Revenue has not pointed out any contrary binding decision in its support. Further, Revenue has also not placed any material to demonstrate that the liabilities written back pertain to capital expenditure. We therefore hold that the income arising out of sundry balances written back needs to be considered an operating item. The AO/TOP is therefore directed to consider the same as part of operating income while working out the margins of the Assessee. Grant the adjustment on account of idle capacity - We thus direct the AO/TPO to compute the Arms Length price of the international transactions entered into by the Assessee with its AEs keeping in view the observations made by us in the preceding paragraphs. Thus the grounds of assessee are partly allowed. Deduction u/s 10A/10B - claim of deduction u/s 10B was denied to the assessee and alternate claim of deduction u/s 10A was also not allowed - HELD THAT:- Since the issue involved in the year under appeal is identical to that of AY 2010-11 [2018 (4) TMI 1621 - ITAT DELHI] we therefore for similar reasons and similar directions restore the issue back to the file of the AO to allow the claim of deduction u/s 10A after considering the submissions of the assessee and in accordance with law.
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