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2022 (1) TMI 1083 - AT - Income TaxTP Adjustment - classification of the assessee as a KPO by applying safe harbor Rules - AR submitted that the functional profile of the assessee has been accepted by the TPO and no case was ever made out by the TPO that the assessee is a KPO - HELD THAT:- It is pertinent to note that the Revenue at no point of time disputed the functions of the assessee company. The assessee company provides back office support services to AEs with the help of tools, infrastructure and training provided by the AEs which is different than the functions of the KPO. Besides this, the DRP has admitted that the Safe Harbour Rule will not be applicable in assessee company’s case. Thus, classification of the assessee as a KPO by applying safe harbor Rules is totally out of context and does not get any support from the evidences before us. Therefore, the directions of the DRP as well as the observations made by the TPO and thereafter comparing the assessee company with that of high end KPO for benchmarking ALP determination of the comparables is not correct. Hence, Ground No. 4 is allowed. Comparable selection - E- Clerx Services Ltd - Functions performed by E-Clerx Services Ltd. takes the nature of high end analytical and research services which require manpower of specific qualifications, skill sets and domain knowledge in contrast to the Assessee rendering back office support services. E-Clerx Services Ltd. works on outsourcing model and outsources substantial amount of work. In the subject year, 22.07% of the total cost of the company that has been paid to the outside vendors for availing of IT enabled services. As such it cannot be compared to the Assessee which provides in-house back office services to AEs. Infosys BPO Ltd - This comparable company is a giant engaged in providing high-end integrated services by assisting its clients in improving their competitive positioning by managing their business processes in addition to providing increased value, whereas the Assessee engaged in providing IT Enabled services. Infosys BPO has high value of goodwill. Infosys BPO owns significant intangibles. Infosys BPO acquired Portland Group Pty. Limited during the FY 2011-12. The acquisition has enhanced the presence of Infosys BPO in high end sourcing and procurement space in Asia Pacific Region. Thus, this comparable company has to be excluded from the set of final comparables. Caliber Point Business Solutions Ltd. - This comparable company cannot be rejected only on the ground of different financial year ending. Company is functionally comparable, this fact has not been disputed by the TPO or the DRP. Caliber Point Business Solutions Ltd. was held comparable to the assessee and included in the final set of comparables by the Tribunal in assessee’s own case in AY 2010-11. No distinguishing facts were pointed out by the Ld. DR related to functions for this year to that of A.Y. 2010-11. Hence, we direct the TPO/AO to include this comparable company in final set of comparable. Jindal Intellicom Ltd.- The assessee is not a high-end KPO. Jindal Intellicom Ltd. passes all the filters applied by the TPO and it is functionally comparable to the assessee. In fact, in preceding year 2011-12, the said comparable company was accepted by the TPO/DRP and the functions remain same. No distinguishing facts were brought on record by the Ld. DR. Hence, we direct the TPO/AO to include this comparable company in final set of comparable. Erroneous treatment of foreign exchange gain/loss as non-operating by applying Safe Harbour Rules - HELD THAT:- It is pertinent to note that foreign exchange fluctuation is inextricably linked with the assessee’s business operation. The foreign exchange gain was on account of difference in the exchange rate prevailing at the time of invoicing & payment for the inter-company billing as well as Difference in exchange rates prevailing at the time of transaction and as on 31.3.2012 for the amount outstanding at the end of the year. In fact, the DRP has admitted that the Safe Harbour Rules do not apply in assessee’s case. Thus this Ground is allowed.
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