Feedback   New User   Login      
Tax Management India. Com TMI - Tax Management India. Com
Acts / Rules Notifications Circulars Tariff/ ITC HSN Forms Case Laws Manuals Short Notes Articles SMS News Highlights
        Home        
Extracts
Home List
← Previous Next →

Bain Capability Centre India Pvt. Ltd. Versus DCIT, Circle-1 (1) , Gurgaon

2017 (11) TMI 959 - ITAT DELHI

TPA - comparable selection - Held that:- The assessee was engaged in the following two segments:- - i) Provision of IT-enabled back-office services (ITeS Segment) Under this segment, the assessee provides Information Technology enabled back-office services such as industry, company and financial analysis which comprise business information, data gathering, analysis and delivery etc. to Bain USA’s global operations through customized remote research and information support services. - ii) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts creditors nor paid any interest to any of its debtors, it cannot be inferred that interest-bearing borrowed funds were utilised for extending any kind of loan to its AE and it cannot be reckoned that assessee has given any benefit to the AE by blocking its interest-bearing funds to the AE by extending the credit period. Accordingly, the transfer pricing adjustment, as made by the TPO, by imputing the interest on delay in receipt of payment is uncalled for on the facts of the present case and .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

einafter referred to as the Act ) passed subsequent to the directions of the Hon ble Dispute Resolution Panel - 1, New Delhi for assessment year 2012-13. 2.0 Brief facts of the case are that the assessee is a 99.99% subsidiary of Bain USA. The assessee company was set up in the year 2006 and during the year under consideration, the assessee was engaged in the following two segments:- i) Provision of IT-enabled back-office services (ITeS Segment) Under this segment, the assessee provides Informat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ich was initially processed u/s 143(1) of the Act and was later selected for scrutiny. A reference u/s 92CA(1) of the Act was made to the Transfer Pricing Officer (TPO) for determining the Arm s Length price (ALP) u/s 92CA(3) of the Act in respect of international transactions entered into by the assessee during the year under consideration. The TPO determined the adjustment/difference on account of ALP in respect of international transaction with Associated Enterprises (AE) in respect of intra .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ssessing Officer/TPO was directed to give an opportunity to the assessee to establish the arithmetical errors made and make necessary corrections. ii) The Assessing Officer/TPO was directed to compute working capital adjustments; iii) The Assessing Officer /TPO was directed to compute the adjustment using rate six months LIBOR plus 400 basis points and the period for which interest was to be calculated was to be limited to the year under consideration. 2.3 Subsequent to the directions of the Hon .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f the Assessee at ₹ 9,77,17,210/- as against the returned income declared by the Assessee at ₹ 1,15,29,195 by making an addition of ₹ 2,01,87,414(Rs. 1,86,38,499 for the transaction pertaining to provision of Information Technologies Enabled Services ( ITES ) and ₹ 15,48,913 on account of interest on receivable outstanding) by holding that the Assessee s international transaction does not satisfy the arm s length principle envisaged under the Act. 1. The Ld. AO/ Hon ble D .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the same was not necessarily available to the Assessee at the time of preparing its TP documentation; 2.2 rejecting comparability analysis in the TP documentation and in conducting a fresh comparability analysis based on application of the additional/ revised filters in determining the Arm s Length Price and while doing so, erred in: 2.2.1 rejecting companies whose accounting year does not end with March 31, 2012 on the basis that the transactions taking place in a different period cannot be co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of the Assessee (disregarding judicial pronouncements on the issue) and thereby resorting to cherry picking of comparables with a prejudicial mind set for making an upward adjustment; 2.3 excluding certain comparable companies submitted by the Appellant on arbitrary grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 2. The Ld. AO/ Hon ble DRP ignored the business/ commercial reality that since the Assessee is remunerated .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

has grossly erred in: 3.1 recharacterising the overdue receivables amount as deemed loan and that it constitutes as an international transaction separate from the main transaction; 3.2 Treatment of outstanding receivables from AEs as separate international transaction i.e. Unsecured loan; 3.3 not appreciating that in relation to the overdue receivables, the conduct of the Appellant with its AEs and non AEs was exactly the same; 3.4 not appreciating that the arm s length price determination for .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

g the recovery of expenses from group companies through the profit & loss account by not appreciating that only value added functions warrant mark-up and thereby recomputing the operating margin earned by the Assessee. 5. Disregarding judicial pronouncements in India in undertaking the TP adjustment. 6. The Ld. AO has grossly erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act. 7. The Ld. AO has erred in FACTS AND IN LAW IN not giving the benefit of minimum .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ribunal in the interest of the natural justice. The aforesaid grounds are mutually exclusive and without prejudice to each other. 3.0 The Ld. AR submitted that although the assessee is aggrieved with the inclusion/exclusion of several comparables, he will be arguing for the exclusion of Eclerx Services Limited and TCS E-Serve Ltd. and for inclusion of R Systems International Ltd. The arguments of the ld. AR in respect of the three comparables are as under:- 1. TCS E-Serve Ltd. : The Ld. AR submi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

case of BC Management Services (P) Ltd. Vs DCIT in ITA No. 5829/Del/2015, 6134/Del/2015 and 6572/Del/2016. The Ld. AR also submitted that TCS E-Serve was held to be incomparable to ITES owing to its incomparable scale of operations, huge intangibles and brand value in the following decisions:- i) Delhi High Court in Pr. CIT vs Actis Global Services Pvt. Ltd. In ITA No. 94/2017 ii) ITAT Delhi in Bechtel India Pvt. Ltd. Vs DCIT in ITA 1478/Del/2015 iii) ITAT Delhi in Equant Solutions India Pvt. Lt .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

erve Ltd. was not a comparable as it followed an outsourcing model of business while the assessee was a captive service provider performing back office support functions. It was submitted that the two models are entirely different and have a significant impact on the FAR of the companies and, therefore, companies following the outsourcing model cannot be compared with the assessee who performs its own functions. The Ld. AR further submitted that the issue of comparability of Eclerx Services Limi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the assessee because Eclerx Services Limited was a high-end KPO engaged in providing data analytics, data solutions, services etc. whereas the assessee is engaged in rendering IT enabled back-office support services in the nature of extraction of company snapshots/details, industry data and other market information from public databases and shares the same with its group companies for research. It was further submitted that that if Eclerx Services Limited was excluded from the list of comparabl .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

clusion of R Systems International Ltd. would become academic. 3. R Systems International Ltd.: The Ld. AR submitted that R Systems International Ltd. has been excluded by the TPO as well as the Hon ble DRP only for the reason that it had a separate year ending. It was submitted that the exclusion of a comparable on the ground of separate year ending has been set aside by the jurisdictional High Court in Mckinsey Knowledge Centre India Pvt. Ltd. in ITA 217/2014. Reliance was also placed on the o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rnational Ltd. is included in the list of comparables, the assessee would be at arm s length after getting the benefit of ± 5% band and as a consequence the issue relating to inclusion/exclusion of TCS EServe Ltd. and Eclerx Services Limited will become academic. It was submitted that then the upper margin of the assessee would be 24.85%. 3.2 On the second issue being challenged by the assessee pertaining to interest of ₹ 15,48,913/- for receivables outstanding beyond 30 days, the L .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

wrong in recharacterizing the overdue amounts as deemed loan. It was further submitted that the Delhi Bench of ITAT in the case of Kusum Healthcare Pvt. Ltd. in ITA No. 6814/Del/2014 had held that if the impact of the credit period was duly factored in as working capital adjustment while determining the ALP, then no separate or further adjustment for interest on the receivables was warranted in the hands of the tested party. The Ld. AR further submitted that this order of the ITAT was upheld by .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

pany where it has neither received any interest from its creditors nor paid any interest to any debtors, and, therefore, it could not inferred that the assessee had given any benefit to the AE by blocking its interest bearing funds by extending credit period to the AE. Reliance was also placed on another order of the ITAT Delhi Bench in the case of B.C. Management Services Pvt. Ltd. vs DCIT (supra) wherein ITAT Delhi Bench had deleted transfer pricing adjustment made by the TPO by imputing inter .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

intangible assets had relevance only in the case of public limited companies and not in the case of private limited companies and, therefore, this comparable was also a good comparable for the assessee company. On the issue of assessee s plea for including R systems in the set of comparables, the Ld. CIT DR placed reliance on the observations of the TPO and submitted that when other comparables were available, then there was no justification introducing a new comparable. 4.1 On the second issue .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ined in the directions of the Hon ble DRP and also submitted that ITAT Delhi Bench in the case of Ameriprise India P. Ltd. vs. ACIT reported in 2015-TII-347-ITATDEL- TP had held receivables do not have any impact on working capital adjustment in any manner. It was also submitted that the Hon ble Delhi High Court in the case of CIT vs. Cotton Naturals India Pvt. Ltd. reported in 2015-TII-09-HC-DEL-TP had held that interest on receivables was a separate international transaction in terms of Explan .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

urt has held in Mckinsey Knowledge Centre India Pvt. Ltd. in ITA No. 217/2014 that if from the available data on record, the results for financial year can reasonably be extrapolated, then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings. Therefore, we deem it appropriate to restore this comparable to the file of the TPO/Assessing Officer for verifying the computation, as recast by the assessee, and include this comparable in the f .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

challenge these comparables in succeeding assessment years, if it is so required, remains protected. 5.2 The second issue relates to treating the delay in receipt of payments from the AE to be in the nature of unsecured loan advanced to the AE and thereby charging interest. Before us, the main contention of the assessee is that since no interest has been charged on the delayed payment made by the third parties, therefore, no interest should be imputed in respect of receivables outstanding from .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

de by the TPO by imputing the interest on delay in receipt of payment be deleted. The relevant observations of the ITAT Delhi Bench in the aforesaid order are contained in paragraph 29 which reads as under - 29. After considering the rival submissions and on perusal of the relevant material placed on record, we find that first of all, the assessee is a debt free company as it has neither received any interest from any creditors nor paid interest to any debtor. A perusal of profit and loss accoun .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

This has been so held by this Tribunal in the case of Bechtel India Private Limited (supra). Moreover as pointed out by the Ld. Counsel, the assessee has also given similar credit period to the third parties which are extending up to 181 days. If a similar credit period is given to the AE as is given to third parties, then under the arms length scenario in looking into the similar conditions prevailing between controlled transaction and comparable uncontrolled transaction, then there cannot be a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

earn a market rate of return on its working capital investment independent of the functions it confirms or products it provides. However, the amount of capital required to support these functions varies greatly, because the level of inventories, debtors and creditors varies. High levels of working capital costs either in the form of incurred interest or in the form of opportunity costs. Working capital yields a return resulting from (a) higher sales price or (b) lower cost of goods sold which w .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

appropriate adjustments need to be considered to bring parity in the working capital investment of the assessee and the comparables rather than looking at the receivable independently. Such working capital adjustment takes into account the impact of outstanding receivables on the profitability.… 12. Accordingly, keeping in view the above factual position as well as the judicial precedents, any separate adjustment on the pretext of outstanding receivables while accepting the comparables a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 

Discussion Forum
what is new what is new
 


Share:            

|| Home || About us || Feedback || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version