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TMI Blog2021 (3) TMI 311X X X X Extracts X X X X X X X X Extracts X X X X ..... HP's worldwide accounting and transaction processing work, provision of back office operation and customer support services to various associated enterprises. The assessee is being compensated at cost + 8%. The assessee adopted TNMM method to benchmark his transactions and the profit level indicator was taken as operating profit by operating cost (OP/OC). The assessee declared net margin of 19.08%. The TPO recomputed the margin of the assessee by excluding interest income and non-operating income and also reducing the expenditure. Accordingly, he computed the net margin of the assessee at 15.75%. 4. The assessee had selected 11 comparable companies in its transfer pricing study. The TPO rejected the transfer pricing study and he selected following set of comparable companies: Sl.No. Name of the case Operating income Operating cost OP/OC 1 Accentia Technologies Ltd. 126,38,02,000 112,89,16,000 11.75 2 Universal Print Systems Ltd. (Seg)(BPO) 6,17,67,000 3,87,49,000 52.46 3 Informed Technologies India Ltd. 1,96,36,431 1,82,45,770 6.08 4 Infosys B P O Ltd. 1316,75,11,974 962,91,06,964 36.30 5 Jindal Intellicom Ltd. 30,27,51,875 30,2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. The above said company has expertise in Strategic outsourcing and category management services. Further the said acquisition has enhanced the delivery presence in high end sourcing and procurement space in Asia Pacific region. It was submitted that this company has been excluded in various decisions. 8. With regard to functionality of M/s TCS E-Serve Limited, the assessee submitted as under:- (a) it is engaged in delivering core business processing services, analytics/insights (KPO) and support services for both data and voice processes. (b) it offers integrated portfolio of service ranging from IT services to BPO services. Accordingly, it is submitted that this company is providing KPO services and hence functionally different. It is further submitted that the company is backed by M/s TCS Ltd and Tata brand equity. This company did not disclose BPO services as separate segment. It was submitted that major business of TCS E Service is from Citi Group pursuant to prior global arrangement making it a deemed international transaction. Further, Citi has signed an agreement with TCS to provide process outsourcing services to Citi and its affiliates for an aggregate amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... While dealing with third parties, "brand value" commands a premium on pricing. Hence both the companies cannot be compared with the assessee company. 13. The Ld A.R submitted that while "Hewlett-packard" may be a known brand, yet it is not known for rendering back-end BPO support services, i.e., it is known for providing hardware and IT solutions to its customers. Hence providing ITES services is not the core business of HP group and hence its brand value of HP cannot be compared with that of M/s Infosys and M/s Tata group. He submitted that M/s Infosys Ltd, the parent company has provided performance guarantee to clients of M/s Infosys BPO Ltd. He submitted that there is close connection between M/s TCS E-serve and Tata Consultancy Services Ltd, which has got high brand value. 14. The Ld D.R submitted that the "service delivery" is more important than the brand value. He further submitted that the annual reports do not show that the revenue growth of both the companies are attributable to its parent companies. The Annual report adduces other reasons for their growth. He submitted that the details of performance guarantee provided by M/s Infosys Ltd are not available and hence i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... definite role to play in fixing the pricing of product/services, but it may have effect only in the field, in which it possesses expertise. Hence the brand value held by M/s Hewllett-Packard may be helpful in marketing of hardware and IT solutions, i.e., it cannot be said that their brand value would command a premium in respect of back end BPO support services. 18. The Ld A.R placed his reliance on host of decisions to contend that the companies having huge brand value cannot be considered as comparable company. In the case of Pr. CIT vs. M/s Sanvih Info Group P Ltd (ITA 420/2019 dated 16.05.2019)(Delhi), the Hon'ble Delhi High Court referred "M/s Infosys Ltd" as giant corporation. In the case of Avaya India (P) Ltd vs. ACIT (2019)(108 taxmann.com 222), the Hon'ble Delhi High Court has made following observations with regard to TCS E-Serve Ltd:- "21. A reference may next be made to the decision in Evalueserve Sez (Gurgaon) (P.) Ltd. (supra) where a reference is made to the earlier decision to the BC Management Services (P.) Ltd. (supra). This decision dealt with the exclusion of three specific comparables, which have also involved in the present case namely M/s. TCS E-Serve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court may also note that the Karnataka High Court has in Pr. CIT v. Softbrands India (P.) Ltd. [2018] 94 taxmann.com 426/406 ITR 513 (Kar.) noted as under: "48. The Tribunal of course is expected to act fairly, reasonably and rationally and should scrupulously avoid perversity in their Orders. It should reflect due application of mind when they assign reasons for returning the particular findings. 49. For instance, while dealing with comparables of filters, if unequals like software giant Infosys or Wipro are compared to a newly established small size Company engaged in Software service, it would obviously be wrong and perverse. The very word "comparable" means that the Group of Entities should be in a homogeneous Group. They should not be wildly dissimilar or unlike or poles apart. Such wild comparisons may result in the best judgment assessment going haywire and directionless wild, which may land up the findings of the Tribunal in the realm of perversity attracting interference under section 260-A of the Act." 27. There is merit in the contention of the Assessee that the scale of operations of the comparables with the tested entity is a factor that requires to be kept in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y applied to the year under consideration also. We have also noticed that M/s Infosys BPO Ltd is being consistently excluded in the assessee's own case in the earlier years. 20. M/s TCS E Serve Ltd was considered by the co-ordinate bench in the case of M/s Arctern Consulting Pvt Ltd (IT(TP)A No.352/Bang/2017 dated 15.10.2019 relating to AY 2012-13) and it was held as under:- "10. As far as TCS E Service Ltd., is concerned, the comparability of this company was considered by this Tribunal in the case of Zyme Solutions Ltd., in its order dated 16.11.2018 as follows:- "11. TCS E Service Ltd.: This company was selected by the TPO and objected by the assessee for inclusion in the list of comparables on the ground that it is functionally different as it is engaged in the business of BPO, banking, finance, insurance domain. This contention was rejected by the TPO by holding that it is engaged in BPO, business of banking, finance, insurance domain, which are purely in the nature of ITES. Even the Hon'ble DRP confirmed the findings of the TPO. 11.1 Being aggrieved, the assessee is before us contending that this company is functionally different as it is engaged in diversified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Knowledge Process Outsourcing and therefore for the reasons stated by us while dealing with this issue of comparability of the company Infosys BPO Ltd. shall equally hold good and therefore we direct the AO/TPO to exclude this company from the list of comparables. Since the appellant company is into low end BPO, it cannot be compared with KPO service provider. 11.4 Respectfully following the decision of the co-ordinate bench of Tribunal, we direct for exclusion of this company from the list of comparable." 11. Respectfully following the aforesaid decision, we hold that TCS E Service Ltd., should be excluded from the list of comparable companies." We notice that M/s TCS E-serve Ltd has been excluded, inter alia, for the reason that it is providing KPO services and further it is explicitly stated that it is an integral part of Tata Consultancy Services strategy to build on its "Full Service offerings" that offer global customers an integrated portfolio of services ranting from IT services to BPO services. It is further observed by the co-ordinate bench that the decision taken in respect of M/s Infosys BPO Ltd would equally apply to M/s TCS E serve Ltd also. 21. We have noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nn.com 464/47 SOT 45 (Bang)(URO), which decisions have subsequently been consistervs followed by this Tribunal, lays down the proposition that foreign exchange gain or loss has to be regarded as IT(TP)A No. 352/Bang/2017 operating revenue or loss. The learned DR however brought to our notice a decision of the ITAT Bangalore Bench in the case of Commonscope Networks (India) (P.) Ltd. v. ITO IT(TP: A.No.166 & 181/Bang/2016 order dated 22.2.2017 wherein it was the foreign exchange gain or loss that arises should relate to the concerned AY because what is compared is the profit margin of a particular AY. According to him therefore the TPO/AO should examine the nature of foreign exchange gain or loss in the case of the Assessee and the comparable companies and to the extent it relates to turnover of the relevant AY and the segment for which ALP is being determined, the same should alone be considered as part of the operating revenue or loss. The learned counsel for the Assessee pointed out that it is impossible to carry out such an exercise. The Assessee might be willing to carry out such an exercise but the same cannot be expected from the comparable companies who have to furnish the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation loss incurred by the assessee in the immediately preceding year as non-operating in nature and the assessee did not object to the same. Accordingly he submitted that the assessee cannot change its stand and contend that the foreign exchange gain should be treated as operating income. The Ld A.R submitted that the assessee, in its transfer pricing study, has always been treating foreign exchange loss/gain as operating in nature. In the preceding year, the assessee had incurred foreign exchange fluctuation loss and exclusion of the same resulted in increase of operating margin. Since it was advantageous to the assessee, the action of TPO was not objected to. He submitted that the nature of transaction is more relevant than the stand taken by the assessee. 24. We notice that the Tribunal, in the above said case, has taken the view that the foreign exchange fluctuation gain/loss is operating in nature. Accordingly, following the same, we hold that that foreign exchange fluction gain/loss should be treated as operating profit/loss in nature while computing the profit margin of the assessee as well as of the comparable companies. 25. In view of the foregoing discussions, the ALP ..... X X X X Extracts X X X X X X X X Extracts X X X X
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