TMI Blog2021 (4) TMI 1085X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the annual reports, it can be seen that audited financial data for the relevant previous year (April, 2009 to March, 2010) is available in the public domain relating to four quarters. Merely having different financial year cannot discard this comparable from the list of comparables. Thus, we direct the TPO/AO to consider this comparable after applying all the filters as well as the functional profile of the comparable into account and thereafter if all the para-meters are proper, then select this comparable. Thus, Ground No. 3 of the assessee s appeal is partly allowed for statistical purpose. TCS Eserve International and TCS E-Serve Limited - It can be seen that the functional profile of these comparables are different from that of the assessee company. Both these entities are involved in software testing, verification and validation of software which falls in the domain of software development services. Besides this separate segmental details pertaining to ITeS/BPO activities are also not available in their financial statements.Therefore, we direct the TPO/AO to exclude both these comparables i.e. TCS Eserve International and TCS E-Serve Limited from the final list of c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee company. In case of I Gate Global Services separate segmental data relating to IT enabled Services and IT Services were not available. In case of Infosys BPO Ltd., it is a giant in the area of the software development, besides this it assumes all risk leading to higher profits as well as there was an extra ordinary economic event during the year as it acquired membership interest in Machenic Systems LLC. Thus, all these comparables were rightly excluded by the CIT(A). Hence, all four grounds of Revenue s appeal are dismissed. - I.T.A. No. 2423/DEL/2017, I.T.A. No. 2815/DEL/2017 - - - Dated:- 26-4-2021 - Shri N. K. Billaiya, Accountant Member And Ms Suchitra Kamble, Judicial Member For the Appellant : Sh. Rajesh Sachdev, Adv And Mr. Manish Bawa, CA For the Respondent : Sh. Anurag Sharma, Sr. DR ORDER PER SUCHITRA KAMBLE, JM These two appeals are filed by the assessee and the Revenue against the order dated 17/11/2016 passed by the CIT(A)- 44, New Delhi for Assessment Year 2010-11. 2. The grounds of appeal are as under:- I.T.A. No. 2423/DEL/2017 (Assessee s appeal) In view of the facts of the case and relevant legal provisions un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) failed to appreciate that there is no difference between KPO and BPO for the purpose of computing ALP. iii) While directing to exclude M/s I Gate Global Service Ltd. from the comparables, the CIT (A) failed to appreciate that engagement of the company in ITS and ITES does not affected the profits of the company. iv) While directing the exclude M/s Infosys BPO Ltd. from the comparables, the CIT (A) failed to appreciate that the comparable cannot be excluded only because the company has substantial intangible in forms of goodwill and different risk factors. 3. The assessee company DH India is a subsidiary of Dunnhumby Ltd. UK. The assessee company is engaged in the business of providing data analytics and data solution development and applications services to its AE i.e. DH-UK. The assessee is operating at cost plus 20% mark up for the provision of services. During the year, the company was engaged in the business of providing information technology enabled services, Web enabled Services, data analytics business in which process outsourcing services and other services relating to back of its operations and business support services to its holding company, Dun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal in case of M/s Midland Credit Management India Pvt. Ltd. (ITA No. 3892 3765/Del/2017 order dated 14.09.2020, has identical issue involved and the Tribunal included the said comparable. As regards to Ground No. 4 relating to erroneous inclusion of TCS E-serve International Ltd. and TCS E-Serve Ltd. in the list of comparables, the Ld. AR relied upon the decision in case of M/s Midland Credit Management India Pvt. Ltd. (supra) and submitted that the Tribunal has directed to exclude the TCS entities. As regards to Ground No. 5 and 6, the Ld. AR submitted that the same are not pressed. As regards to Ground No. 7, the Ld. AR submitted that no economic rationale was adopted for charging mark-up on out of pocket expenses by the TPO. The Ld. AR submitted that it is common industry practice not to charge any mark-up on recovery of out of pocket expenses, such as, outstation travel, boarding/lodging, etc. Such expenses are incurred on need basis and do not add intrinsic value to services being delivered. An independent third party would not have paid any mark-up on such reimbursements. The Ld. AR relied upon the decision of the Tribunal in case of Cheil Communication India P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cumentation and the comparables, selected by the assessee have been discussed in para 2.3 of SCN at P/3-5 of the TP order, Para-4 at P/5-6 of the TP order. The TPO, after considering the reply of the assessee, discussed the filters and the comparables in para 3.5 of the TP order. The CIT(A) has upheld the action of the TPO and his discussions are recorded at Page Nos. 12-14. The filters proposed by the TPO have been discussed at para 2.4 3 of the SCN at Page no. 5 of the TP order and the proposed comparables have been discussed in para 4.2 4.3 of the SCN at page no. 6-7 of the TP order. The TPO after considering the reply of the assessee have further discussed the use of current year data at para 3.7 at page no. 12, filters quantitative criteria at para-4 of the order at page no. 19- 46. The Ld. DR submitted that the CIT(A) has upheld the action of the TPO and his discussions are recorded at page 14. As regards rejection of R Systems International Ltd , the discussions are recorded at page 64 of the TP order. This comparable has been rejected due to having different year ending and nonavailability of audited data on quarterly basis. As discussed, neither contemporaneous data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 17.1 to 17.4, Page 25-27] has upheld the exclusion of foreign exchange gain/loss both in the case of the comparable companies and in the case of the tested party. Accordingly, the Ld. DR prayed that the order of the TPO and the CIT(A) may be sustained. On the issue of allowing risk adjustment, the CIT(A) examined the issue and has held that the same is not admissible as per discussions recorded at P/23 of his order. However, the CIT(A) has allowed working capital adjustment. As regards the issue of considering 3rd party cost recoveries from AE for applying mark-up, the discussions of the TPO are recorded in para 4.14 at page 75-81 of the TP order. The CIT(A) has upheld the action of the TPO as discussed at page 23. The CIT(A) has held that these recoveries from AE, being expenses of boarding/lodging expenses of the employees, are part parcel of the business of the assessee and forms part of the total cost base. On the issue of adjustment on account of delayed realization of receivables from AE, the Ld. DR submitted that the TPO has noted on perusal of the Service Agreement dt. 27.02.2009 with the AE that a period of 30 days was allowed to the AE to make the payment of receivab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the case of Cotton Naturals India Pvt. Ltd., ITA No.233/2014. The Ld. DR also relied upon the following case-laws on the issue: (i) Techbooks International Pvt. Ltd., ITA No. 6102/Del/2016, order dt. 06.07.2020 of ITAT, Delhi. The Ld. DR submitted that this case squarely covers the issue involved in the case of the appellant viz. treatment of such outstanding receivables as loans, denial to aggregated benchmarking of principle transactions outstanding receivables, plea of working capital adjustment. The case-law of Kusum Healthcare Pvt. Ltd has also been considered and the facts are distinguished in addition to other case-laws considered/discussed by the Tribunal. (ii) Techbooks International Pvt. Ltd., ITA No. 240/Del/2015, order dt. 06.07.2015 of ITAT, Delhi. (iii) Samsung India Electronics Pvt. Ltd, ITA No. 6813/Del/2012, order dt.07.01.2020 of ITAT, Delhi. (iv) Cheil India Pvt. Ltd vs. DCIT, ITA No.l230/Del/2014, order dt.15.05.2014 of ITAT, Delhi. 9. We have heard both the parties and perused all the relevant material available on record. The Ld. AR at the time of hearing submitted that Ground No. 1 is General, hence not pressed as well as Ground No. 4 and 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s i.e. TCS Eserve International and TCS E-Serve Limited from the final list of comparables. Hence, Ground No. 4 of the assessee s appeal is allowed. As regards to Ground No. 7 relating to third party cost recoveries from AE for the purpose of applying the mark-up, it can be seen that the third party expenses as claimed by the assessee are that of expenses on travel, boarding and lodging etc. of its employees during outstation visits. As per the terms of the service agreement with the overseas AE, such expenses are recovered by the assessee on a costto- cost basis, without charging any mark-up. The CIT(A) has rightly held that the assessee should have marked up these expenses by a profit-margin before making the recoveries as the said expenses are part and parcel of the business of the assessee and forms part of the total cost based. Besides this the decisions of Cheil Communication India Pvt. Ltd. (supra) is altogether on a different footing and the factual aspects are totally different from that of the assessee s case herein. In Cheil Communications, the issue was that of remunerated by its associated enterprises on the basis of a fixed commission/charges based on expenses or c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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