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2017 (5) TMI 830 - ITAT DELHI

2017 (5) TMI 830 - ITAT DELHI - TMI - Transfer pricing adjustment in respect of 'Provision for Research and Information Services - comparability - Held that:- The assessee is carrying on research from the internet based databases or other sources to compile the data, which is then customized/processed in accordance with the requirements of the requestor through a series of operations carried out by its Research Managers, Knowledge Experts, Practice Specialists and Senior Research Analyst etc. be .....

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sessee need to be deselected from final list of comparable. - Transfer pricing adjustment on account of interest on receivables - Held that:- It is simple that working capital adjustment is ordinarily computed by considering the average of the opening and closing values of inventories, receivables and payables. A transfer pricing adjustment on account of interest on delayed realization of invoice value has nothing to do with the closing or opening values. It depends on the period of realizat .....

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ct on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months. Following the orders in Ameriprise (2015 (8) TMI 652 - ITAT DELHI ) and Techbooks(2015 (7) TMI 473 - ITAT DELHI) we uphold the view taken by the TPO on this issue. Interest on late realization of invoices is directed to charged in line with the directions given in the above orders of the Delhi Bench of the tribunal. - Treatment of for .....

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international transactions. If the foreign exchange gain/loss directly results from the trading items, we fail to appreciate as to how such foreign exchange fluctuation loss can be considered as non-operating. - We are of the considered opinion that the amount of foreign exchange gain/loss arising out of revenue transactions is required to be considered as an item of operating revenue/cost, both for the assessee as well as the comparables. The ground taken by the Department is, therefore, di .....

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with section 144C of the Income-tax Act, 1961 (hereinafter also called 'the Act') in relation to the assessment year 2011-12. A. RESEARCH AND INFORMATION SERVICES 2. The first issue raised by the assessee in its appeal is against the transfer pricing adjustment in respect of 'Provision for Research and Information Services.' Briefly stated, the facts of the case are that McKinsey is a Management consulting' concern headquartered in New York with more than 90 branch offices i .....

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s internet based databases, such as, Bloomberg, Reuters, One Source, Dow Jones, Dialong and Datastream. In the year 2004, the assessee also started providing IT support services to McKinsey group of companies. Two international transactions were reported by the assessee in Form No.3CEB for the year under consdieration, which include 'Provision for research and information services' to McKinsey & Co. Inc., USA, currently under consideration, with transacted value of ₹ 1,36,09,15 .....

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. 16 comparables companies, including some non- Indian entities, were chosen by the assessee to show that the assessee's PLI was at ALP. The TPO observed that the assessee was showing profit margins at net level in this segment over the years. It was seen that OP/OC of this segment for the F.Ys. 2007-08, 2008-09 and 2009-10 was 35.34%, 131.48% and 53.34%, respectively. As against this huge profit margin, the assessee had shown its OP/OC for the current year only at 15.17%. 14 companies inclu .....

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rla Sunlife Asset Management Company Ltd. 52.05% Ladderup Corporate Advisory Pvt. Ltd. 52.42% Average 38.06% 3. Applying the mean profit margin of 38.06% to the assessee's Operating costs relating to transactions with its AE amounting to ₹ 1,18,20,33,553 under this segment, the TPO proposed transfer pricing adjustment of ₹ 27,05,45,360/-. The assessee approached the Dispute Resolution Panel (DRP) against the draft order incorporating the transfer pricing adjustment under this seg .....

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eard the rival submissions and perused the relevant material on record. It is evident that there is no dispute on the selection of TNMM as the most appropriate method or the PLI of OP/OC etc. In fact, no other aspect of the TPO's order has been challenged except the inclusion of four new comparables introduced by the TPO, namely, Aditya Birla Capital Advisors Pvt. Ltd., ICRA Ltd., Birla Sunlife Asset Management Company Ltd. and Ladderup Corporate Advisory Pvt. Ltd. 5. Before embarking upon t .....

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e on call group: Provides generalist research and information support. The services offered include financial analyses, fact packs, press search, document search, etc. The group consists of around 130 personnel, mostly with 0-2 years of experience. Practice research group: This sub-group is focused on domain specific research support. With a team size of over 90, it provides sector data and analyses, capital market insights, perspectives and industry trends. Analytics group: The primary focus of .....

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use 1 of the Agreement, defining the nature of work, is reproduced as under:- "1. Engagement of McKC The Client hereby engages McKC to render the below mentioned services (the "Services"): (a) Develop, maintain and service the software and information/research related products and services; and (b) Knowledge management systems and infrastructure issues which would encompass infrastructure support, application support, application operations group and survey development center and .....

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egment available in the Agreement, and it was claimed that the nature of services continues to remain the same over the years, we asked the ld. AR to take us through the predecessor Agreement. From such earlier Agreement, we find that the description of services is verbatim reproduction of what has been set out in the Master Services Agreement reproduced above. 8. The ld. AR contended that the assessee under this segment has rendered data processing services which are in the nature of Business p .....

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re was a charge of US $ 1500 per day for Analytics manager. The ld. DR also took us through the extract from website of McKinsey group which, specifically, covers McKinsey Knowledge Centre, namely, the assessee. It has been shown that the assessee is: "providing industry and functional expertise, advanced analytics, business research and proprietary tools and data". In the background of the portrayal of the assessee's nature of work, the ld. DR contended that the assessee was not m .....

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two concepts. In common parlance, BPO means outsourcing of some of the basic and routine business functions to a third party, which may be back office or front office operations. While front office services are related to client interaction and customer support, back office services are related to finance and HR etc. On the other hand, KPO is outsourcing of specialized and knowledge based services/processes, such as, R&D, market research, analytical based services and engineering design, Cap .....

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for providing services'. 10. Armed with the above understanding, let us see if the services rendered by the assessee in this segment are BPO or KPO? Here It is relevant to note that McKinsey group of companies is engaged in providing management consultancy services to its clients in the fields of business technology, operations, strategy, organization marketing and sales and corporate finance. These companies, seek assistance of the assessee for enabling them to render services of consultanc .....

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, elementary in nature, requiring the assessee to pick up the relevant data from internet based databases. These services include financial analyses, fact packs, press search, document search, etc. A specimen of such services given by the ld. AR is a request made for providing off-the-shelf company profiles of certain companies, which the assessee compiled, organized into templates in Excel, Power Point etc. and then transmitted outside India as its output. 12. Services under 'Practice resea .....

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the details by mentioning that: "it did an exhaustive press search to gauge which all banks have commitments to expand Private banking business in Asia and brief on what they intend to do." Bank-wise description of immediate goals covered in press was submitted. 13. Services under the 'Analytics group' are most complex services, which the assessee itself has described in its transfer pricing study report that : the primary focus its analytics group is on data intensive analysis .....

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r requested to put the hospital 'ID No.' in the stent data file from Column 'A' of the Hospital List File. Then, there are details and certain assumptions which should be taken by the assessee. Then, caveat has been added requesting not to change name of file 'Stent data' and not to change the name of 'tab index' and its structure. Thereafter, specific proforma was given in which the information was desired. The assessee compiled the data as requested after due re .....

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rements of the requestor before transmitting it outside India after organizing into templates in Excel, Power Point etc. Thus, it is evident that the assessee is making value addition to the information accessed by it from databases etc. 15. The assessee has itself given full composition of its team of 621 persons rendering such services as comprising of Research Manager', Research Team Leader/Knowledge Expert', Knowledge/Practice Specialist', Senior Research Analyst', Research A .....

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per day for seven hours, Project leader/Analytics specialist at 750 US $ per day for seven hours, Sr. Analyst at 600 US $ per day for seven hours, Analyst at 500 US $ per day for seven hours and Junior Analysts at 375 US $ per day for seven hours. Such huge amounts charged for Analytics manager, Team leader/Expert and Project leader/Analytics specialist, etc. do not justify the assessee's stand of accessing data or conducting a research of casual nature. 17. The ld. AR placed a great deal of .....

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es. It was thus contended that the Revenue was not entitled to shift its original stand that the assessee was not making any value addition to the information accessed from internet based databases before providing it to McKinsey group companies. 18. It was submitted by the ld. AR that the Tribunal reversed the finding of the AO and restored the claim of deduction u/s 10A for the A.Y. 2006-07, whose copy has been provided in the paper book. It was further stated that the Hon'ble High Court h .....

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gins to manufacture or produce such articles or things or computer software, as the case may be, shall be allowed from the total income of the assessee'. Explanation 2 to this section explains the term computer software' to mean : (a) any computer programme recorded on any disc, tape, perforated media or other information storage device; or (b) any customized electronic data or any product or service of similar nature, as may be notified by the Board, which is transmitted or exported fro .....

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passed for the A.Y. 2006-07 reversing the view of the AO on the denial of deduction u/s 10A and then the judgment of the Hon'ble High Court affirming the view of the tribunal have been placed by the ld. AR in its paper book. It can be seen from the tribunal order, that the AO denied deduction by holding that the services undertaken by the assessee were not I.T. Enabled Services as the added value for customer was not generated, least significantly, through the use of information and communic .....

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parent company. The assessee, inter alia, contended in first appeal, as has been reproduced on page 5 of the tribunal order, that the assessee, after receiving the request was collating the information from specialized data sources/data bases. (d) The data was then customized/processed in accordance with the requirements of the requestor; (e) The customized/processed data was then organized into templates in Excel, Power Point etc. and was transmitted outside India through electronic means; (f) .....

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ized to suit the needs of the requester and thereafter exported out of India'. After recording the observations of the AO and CIT(A), the tribunal noted on page 7 of its order that : It is clear from the modus operandi that what was accessed by the assessee at the STP Unit and what was delivered to McKinesey (Parent Company) after the conversion took place were two different products/services which is described as customization of data/data processing. The STP Unit undertook the series of op .....

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e conclusions drawn by the CIT(A) and the tribunal overturning the view of the AO. 21. There is no force in the contention of the ld. AR that the AO having held that the assessee did not make any value addition to the data from databases and hence was ineligible for deduction u/s 10A, could not have taken a contrary view in determining the nature of the assessee's activity as that of the KPO. It is rather the other way around. The assessee has vehemently argued before the authorities below t .....

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Court have approved the assessee's viewpoint of value addition made by the assessee by undertaking series of operations to the data received form various databases before finally delivering to the customer. 22. It is thus established that the assessee is carrying on research from the internet based databases or other sources to compile the data, which is then customized/processed in accordance with the requirements of the requestor through a series of operations carried out by its Research M .....

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ing huge expertise and skills. 23. Having seen the nature of services rendered by the assessee under this segment, let us examine the comparability or otherwise of the companies assailed by the assessee before us. 24. Before that, we would like to deal with a submission advanced by the ld. AR, which is common to most of such companies, that certain Benches of the Tribunal in other cases have held them to be not comparable. In that view of the matter, it was urged that those companies, being ex f .....

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ity. Notwithstanding the functional similarity, many a times a company ceases to be comparable because of other reasons as well. To cite an example, if company 'A', though functionally similar to company 'B', but has related party transactions (RPTs) breaching a particular level, then, such company cannot be considered as comparable to company 'A' in the year in which the RPTs breach such a level. If, however, in the subsequent year, the related party transactions fall be .....

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n held to be incomparable vis-a-vis company 'B', then it is not essential that company 'A' would be incomparable to company 'C' also. What is relevant to consider is, firstly, the functional profile of company 'A' vis-a-vis company 'C'. If both are functionally similar, then notwithstanding the fact that company 'A' was held to be incomparable to company 'B', it may still be comparable to company 'C'. Despite the fact that company & .....

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been held to be not comparable in a judicial order passed in the case of company 'B', does not per se make it incomparable in all the subsequent cases to follow. Not only company 'A' held to be incomparable to company 'B' can be comparable to company 'C', but company 'X' held to be comparable to company 'Y' can also be incomparable to company 'Z', depending upon the functional profile and the applicability or otherwise of the related facto .....

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companies assailed before us as not comparable,. (i) Aditya Birla Capital Advisors Pvt. Ltd., 26.1. The TPO proposed this company as comparable which was objected by the assessee on the ground that it was a company rendering asset management services and, hence, functionally dissimilar. The TPO treated it as comparable, which was approved by the DRP. The assessee is aggrieved against such inclusion. 26.2. After considering the rival submissions and perusing the relevant material on record, we fi .....

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ssets excluding Realty and Hard Infrastructure investments. At the current activity levels, the Company has raised and managements two sector- agnostic domestic funds, namely, Aditya Birla Private Equity Fund-I and Aditya Birla Private Equity - Sunrise Fund'. Break-up of "Revenue from Operations" given on page 253 of the paper book gives the description of the nature of its revenues, namely: "Management Fees." Thus, it is apparent that the nature of business of this compa .....

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was rejected and the same was finally included in the final tally of comparables. 27.2. Having heard both the sides and perused the relevant material on record, it is found that this company, as noted by the TPO on page 22 of his order, is : "the investment manager of Birla Sun Life Mutual Funds, is a joint venture between the Aditya Birla Group and the Sun Life Financial Inc. of Canada." The TPO has further recorded that this company is managing assets of large investor base with sol .....

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t from rendering these services, this company has also its own investment portfolio from which dividend has been received and it has also earned profit on sale of investments, depicted on page 281 of the paper book. Page 303 of the paper book clearly mentions under Notes to accounts - point (xiv) - Segment information for the year ending 31st March, 2011, that: "The company's operations mainly relate to providing asset management services and portfolio management services ....... Hence .....

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he inclusion of this company in the final set of comparables by contending that it is functionally dissimilar. Not convinced, the TPO included the same. 28.2. After going through the rival submissions and perusing the relevant material on record, we find from the Annual report of this company which is available on pages 309 onwards of the paper book that it is providing Rating services' comprising of Credit Rating, Bank Loan Rating, Corporate Governance Rating, Stakeholder Value and Governan .....

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bases for compiling the data, which is then customized/processed in accordance with the requirements of the requester and then organized into templates in excel, power point, etc., before transmitting outside India. There being no closeness with the functions performed by the assessee, this company is directed to be excluded from the list of comparables. (iv) Ladderup Corporate Advisory Pvt. Ltd. 29.1. Against the TPO's proposal for the inclusion of this company, the assessee objected that t .....

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y placed on page 469 of the paper book, shows Operational income of ₹ 11.18 crore whose description has been given in Schedule 11 as: "Financial and Management Consultancy Fees. " The ld. AR has placed on record an extract from the website of this company, which shows that on July, 22, 2010, being a period relevant to the year under consideration, this company: "received a Category-1 Merchant banking registration from the Securities and Exchange Board of India." On an o .....

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the TPO which have been challenged. 31. We are not agreeable with this line of argument. The Hon'ble jurisdictional High Court in Rampgreen Sales Pvt. Ltd. vs. CIT (2015) 377 ITR 533 (Del) has held that the comparables should be selected on the basis of similarity. Thus it is evident that the functional comparability can't be seen on a broader categorization but on functional level. The Hon'ble Court further laid down that selection of comparables does not differ with the method ado .....

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the ld. AR for exclusion. He submitted that the TPO applied broad functional comparability for selecting comparable companies, including the above two companies from the assessee's list. As per the ld. DR, the TPO did not go by the strict comparability. He urged that if the companies argued by the ld. AR for exclusion are eliminated on the basis of strict comparability, then the two companies as chosen by the assessee and approved by the TPO should also be excluded and a fresh selection pro .....

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lve investigation into facts and an opportunity is given to other side to meet the contentions. Au contraire, the ld. AR strongly objected, firstly, to the making of such an oral request of the ld. DR despite this issue not being challenged in its appeal and secondly, for the exclusion of the two companies which were earlier accepted by the TPO as comparable. 34. We are inclined to accept the request of the ld. DR about his entitlement to raise a fresh issue de hors no formal application under r .....

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tion of the ld. DR for the exclusion of two comparables companies chosen by the assessee and approved by the Officer in the proceedings. The TPO, as per the ld. DR, accepted the same notwithstanding the fact that these were not functionally strictly similar. We do not approve such a stand of the Revenue. Once TPO expressly accepts a company with low margin as comparable vis-a-vis the assessee's high margin, after due application of mind, then the ld. DR cannot be allowed to contend that the .....

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f argument is accepted and given a logical conclusion, then invariably all the cases pending before the tribunal will require restoration to the TPO, not only for excluding the companies approved by the TPO, but also for undertaking a fresh process of selection on the basis of comparability, which the DR considers as appropriate. Crux of the matter is that the DR cannot improve the order of the TPO. Even if the independent order of the AO/TPO went wrong qua the Revenue, then remedy lies elsewher .....

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applied to instant facts. It is so for the reason that a company treated as comparable may have lower or higher profit margin than that of the assessee. If the profit margin of such company is high, the TPO will accept the comparability without any hesitation, even if he finds it as incomparable. The assessee, in such circumstances, can challenge the suo motu wrong inclusion of this company in the list of comparables before the tribunal, because undue advantage was taken by the TPO in accepting .....

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redressal of its grievance before the tribunal, in the second situation, the TPO explicitly accepted a company after having full opportunity of examining the assessee's mistake in including a wrong company as comparable. Now, if the TPO has supposedly done some wrong, the DR cannot assume the role of a TPO to point out that the later should not have done this or that and hence it may be corrected before the tribunal. There is appropriate compartmentalization of the powers and limitations of .....

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ond the order of the Transfer Pricing Officer and the Assessing Officer so as to make out some different case. 37. Insofar as the reliance of the ld. DR on Gurinder Kaur (2006) 102 ITD 189 (Del) is concerned, we find that the same does not buttress his point of view. In that case, it was held that it is open to the respondent in an appeal before the Tribunal to raise a new ground in defence of the order appealed against provided they do not involve investigation into facts and an opportunity is .....

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AO/TPO by seeking the exclusion of the companies, whose inclusion was approved by the TPO himself. Even on macro level, the ld. DR cannot be said to defending the order of the AO/TPO by contending that he was supporting the sustenance of transfer pricing addition by urging the exclusion of these two companies. The fresh comparables chosen by the TPO and challenged before us have been held above as not comparable. With their exclusion, the transfer pricing addition will either stand deleted or ge .....

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as an internally comparable uncontrolled transaction available in this case by which the assessee rendered similar services under this segment to M/s Samsung. He contended that the TPO went wrong in applying the TNMM when a comparable uncontrolled transaction was available. It was submitted that the Comparable Uncontrolled Price (CUP) method should be directed to be applied and the matter be sent back to the AO/TPO for redetermining the ALP of the international transaction under this segment by .....

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n for the assessee converting to a new model of remuneration of cost plus 15% from this year onwards. Such new method was claimed to have resulted into shifting of income from India vis-à-vis the earlier years. It was argued that the assessee resorted to tax avoidance by changing the model of remuneration. Relying on Mcdowell & Co. Ltd. vs. CTO (1985) 154 ITR 148 (SC), the ld. DR urged that the assessee's attempt to thwart the payment of legitimate taxes in India should be put to .....

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t is evident from table of revenue placed by the assessee on page 165 of the paper book. This page shows total revenue amounting to ₹ 143.34 crore under the segment of Research analysis and information services'. As against this, the revenue from AE is to the tune of ₹ 136.09. This shows that the remaining revenue of ₹ 7.25 crore was earned by the assessee from its non-AE, which has been stated to be M/s Samsung. We find that the TPO neither considered M/s Samsung as an int .....

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vant comparable, we fail to see how the ld. DR can ask for considering it so. At the cost of repetition, we observe that the DR has no role in the selection of comparables, which power vests with the TPO alone. His job is to defend the order of the AO/TPO and not improving the same. 42. Similar is the position for the second argument advanced by the ld. DR. The entire scenario of the higher profit rate in the preceding year on the basis of the fixed price model of remuneration and lower profit r .....

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visions is to ensure that the assessee in India declares price/profit in/from an international transaction which is compatible with the price/profit rate declared by unrelated parties in a comparable uncontrolled situation. Object of section 92, as it transpires from its language, is that any income arising from an international transaction should be computed having regard to the arm's length price. This provision is not aimed at maximization of chargeable profit from an international transa .....

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eck the price charged or profit earned by comparables in uncontrolled transactions during the year and then compare it with the price charged or profit earned by the assessee from its international transaction. If the assessee's price/profit is at ALP, even if it is lower than that of the preceding year, the same has to be accepted. There is no significance of the earlier year's higher/lower price or profit insofar as the determination of ALP of a later year's international transacti .....

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10A, then it was for the AO to appropriately restrict the amount of deduction. Allowing excess deduction in earlier years on the basis of exaggerated profits, if any, cannot be a reason to disturb the ALP of the international transaction for the current year. 45. Now we, espouse the next leg of the submission of the ld. DR w.r.t. the clause (e) of Explanation to section 92B. Before that, let us have a look at the relevant provision, whose relevant part reads as under:- Explanation.-For the remo .....

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n, entered into by an enterprise with an associated enterprise, irrespective of the fact that it has bearing on the profit, income, losses or assets of such enterprises at the time of the transaction or at any future date shall be treated as an international transaction. We are unable to comprehend the applicability of this part of the Explanation to the facts of the instant case. Firstly, there is no business restructuring or reorganization. The business continues as such. It is only the model .....

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TPO as comparable, cannot be excluded on the request of the ld. DR. The AO/TPO is directed to determine the ALP of the international transaction of Research and information services' in accordance with the above discussion. B. INFORMATION TECHNOLOGY SUPPORT SERVICES 48. The assessee reported another international transaction of 'Provision of Information Technology support services' to McKinsey & Co. Inc., USA with transacted value of ₹ 6,74,54,761/-. The assessee used TNMM .....

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ddition after considering the direction given by the DRP. 49. The assessee has disputed the inclusion of E-Clerx Services Ltd. and non-inclusion of two comparable companies cited by the assessee, namely, Informed Technologies India Ltd., and Micro Genetics Ltd. No other aspect of determination of ALP under this segment was challenged. 50. We have heard the rival submissions and perused the relevant material on record. It goes without saying that the comparability or otherwise of a company can be .....

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;s order. There is no elaboration of the nature of services under this segment except the TPO noting on page 66 of his order that the assessee is 'engaged in KPO activities'. On a pointed query, the ld. AR contended that the assessee was merely rendering help-desk services under this segment, which is a simplest form of BPO services. We find an apparent conflict between the description of services as stated by the ld. AR and as recorded in the order of the TPO. 51. In an attempt to ascer .....

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tion/research related products and services. Further, the Client requires assistance with respect to knowledge management systems and infrastructure related issues like server problems, hosting of Notes databases, problems with documents in the Notes databases." 52. The ld. AR while arguing "Research and Information Services" submitted that only "information/research related products and services" from the preamble part are covered under Research and information services .....

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gment of "Research and Information Services", the ld. AR submitted that only "information/research related products and services" covered under Clause 1(a) are relevant for Research and information services' segment and the remaining part of clause 1(a) and whole of the clause 1(b) pertains to IT support services'. Therefore, it is deducible that the nature of service covered under the IT Support services' segment are (a) Develop, maintain and service the software .....

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lusive of Knowledge management systems and infrastructure issues which would encompass infrastructure support, application support, application operations group and survey development center', which are KPO in nature. 54. Page 8 of the 4th Paper book of the assessee gives details of 27 employees engaged in rendering IT Support Services'. When we look at their designations given therein, it comes out that they consist of 17 IT Analysts, apart from Fast Regional Manager- Asia Pac, 2 Operat .....

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namely Knowledge on call, Practice research and Analytics, no evidence the ld. AR has been placed on record to show the nature of services rendered under the segment of IT Support services'. 55. In view of the apparent conflict in what the assessee is stating and what is prima facie coming out from record, without there being any material to show the exact nature of services, we are helpless to decide the comparability or otherwise of the companies challenged before us. Under these circumst .....

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efly stated the facts of the case are that on examination of the assessee's balance sheet, it was noticed by the TPO that payments against the invoices raised by the assessee were not received within the stipulated time as provided in the Agreement. On being called upon to explain that why the delayed payments be not treated as unsecured loans advanced to the AEs, the assessee submitted that it was not an international transaction warranting benchmarking. The TPO rejected this contention and .....

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ntrary view has been taken. It was, therefore, contended that a reasonable view be taken. In the opposition, the ld. DR supported the impugned order. 58. We have heard the rival submissions and perused the relevant material on record. It is seen that similar issue cropped up in the case of Ameriprise (supra) and also Techbooks International Pvt. Ltd. vs. DCIT in ITA No.240/Del/2015. In the former case, the bench, after taking note of the view taken in Techbooks (supra) noted that the Finance Act .....

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ude- (a) ............ (b) ........... (c) capital financing, including any type of long-term or short- term borrowing, lending or guarantee, purchase or sale of marketable securities or any type of advance, payments or deferred payment or receivable or any other debt arising during the course of business;....' 59. On going through the relevant part of the Explanation inserted with retrospective effect from 1.4.2002, thereby also covering the assessment year under consideration, the Bench fou .....

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the determination of their ALP. If the payment of interest is excessive or there is no or low receipt of interest, then such interest expense/income need to be brought to its ALP. The expression 'debt arising during the course of business' in common parlance encompasses, inter alia, any trading debt arising from the sale of goods or services rendered in the course of carrying on the business. Once any debt arising during the course of business has been ordained by the legislature as an i .....

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Patni Computer Systems Ltd., (2013) 215 Taxmann 108 (Bom.) dealt, inter alia, with the following question of law:- "(c) Whether on the facts and circumstances of the case and in law, the Tribunal did not err in holding that the loss suffered by the assessee by allowing excess period of credit to the associated enterprises without charging an interest during such credit period would not amount to international transaction whereas section 92B(1) of the Income-tax Act, 1961 refers to any other .....

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sion divulges that non-charging or under- charging of interest on the excess period of credit allowed to the AE for the realization of invoices amounts to an international transaction and the ALP of such an international transaction is required to be determined. 63. The Delhi Bench in Ameriprise (supra) and Techbooks (supra) did not approve the reasoning about such interest subsuming in working capital adjustment. It found that the working capital adjustment is in respect of international transa .....

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e other hand, the international transaction of interest receivable from its AEs for late realization of invoices beyond such stipulated period is a separate international transaction. Allowing working capital adjustment in the international transaction of rendering services has been held to have no impact on the determination of ALP of the international transaction of interest on receivables from AEs beyond the stipulated period allowed as per the Agreement. In our considered opinion, whereas, t .....

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on of purchase/sale of goods. There is one more fallacy in the argument about the subsuming of interest income in the working capital adjustment. It is simple that working capital adjustment is ordinarily computed by considering the average of the opening and closing values of inventories, receivables and payables. A transfer pricing adjustment on account of interest on delayed realization of invoice value has nothing to do with the closing or opening values. It depends on the period of realizat .....

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ct on the working capital adjustment in any manner, but would call for addition on account of the late realization of invoice value for a period of six months. Following the orders in Ameriprise (supra) and Techbooks (supra), we uphold the view taken by the TPO on this issue. Interest on late realization of invoices is directed to charged in line with the directions given in the above orders of the Delhi Bench of the tribunal. D. FOREX LOSS 64. The only issue raised by the Revenue in its appeal .....

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f OP/OC under the TNMM. 65. We find merit in the contention raised on behalf of the assessee about the inclusion of foreign exchange gain/loss in the operating revenue/costs of the assessee as well as that of the comparables. When we advert to the nature of such foreign exchange gain earned by the assessee, it has not been controverted by the ld. DR that the same is in relation to the trading items emanating from the international transactions. If the foreign exchange gain/loss directly results .....

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ion. It went on to add that when goods are exported and invoice is raised in currency of the country where such goods are sold and subsequently when the amount is realized in that foreign currency and then converted into Indian rupees, the entire amount is relatable to the exports. In fact, it is only the translation of invoice value from the foreign currency to the Indian rupees. The Special bench held that the exchange rate gain or loss cannot have a different character from the transaction to .....

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re) has held that foreign exchange fluctuation gain is part of operating profit of the company and should be included in the operating revenue. Similar view has been taken in Trilogy E Business Software India (P) Ltd. Vs DCIT (2011) 47 SOT 45 (URO) (Bangalore). The Mumbai Bench of the Tribunal in S. Narendra Vs Addtl. CIT (2013) 32 taxman.com 196 has also laid down to this extent. 68. The reliance of the ld. DR on Safe Harbour rules to contend that foreign exchange gain or loss be taken as non-o .....

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