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TMI Blog2022 (5) TMI 97X X X X Extracts X X X X X X X X Extracts X X X X ..... and in the circumstances of the case and in law, the order passed by the Learned Deputy Commissioner of Income-tax, Circle 1(1)(1), Bangalore ("the AO") under section 143(3) read with section 144(C)(13) of the Act is erroneous and bad in law. 2. That on the facts and in circumstances of the case and in law, the Learned AO erred in assessing the returned income of INR 1,54,99,871 at INR 15,35,12,304. 3. The learned collegium of Commissioners comprising the DRP erred in law and on facts, by not adhering to the procedure laid down in section 144C(6) and 144C(7) of the Act. B. Transfer Pricing issues 4. The learned Transfer Pricing Officer ("TPO") has erred, in law as well as on facts while making the following adjustments in the order passed under section 92CA and holding that transactions between the Appellant and its associated enterprise ("AE") were not at arm's length. 5. The learned AO/TPO has erred, in law as well as on facts while incorrectly following the directions of the Hon'ble DRP and incorrectly computing an adjustment of INR 13,80,12,433 in the final assessment order. 6. The learned AO/DRP/TPO has erred, in law and on facts by not appreciating that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Rule 10B(3) of the Rules, international commentaries and judicial pronouncements, which advocate usage of multiple year data of comparable companies for the purpose of determination of the arm's length price. 17. The learned AO/DRP/TPO erred in law and on facts by not taking into consideration foreign exchange fluctuation gain/loss and other income while computing the operating margin of the comparable companies. 18. The learned AO/DRP/TPO erred in law and on facts of the case by not providing a relief on account of differences in risk profile levels between the Appellant and the potential comparable for both Software support and BPO support services segments. 19. The learned AO/DRP/TPO-has erred in by failing to appreciate the fact that transfer pricing is an anti-avoidance mechanism and since the Appellant is registered as an entity registered under the STPI and has claimed tax benefits under section 10A of the Act, the TP adjustment was not required to be made in view of the order passed by the Bangalore ITAT in the case of Philips Software Centre (P) Limited. 20. The learned AO/DRP/TPO erred in law and on the facts of the case by not correctly implementing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... leaves to add/alter any of the grounds of appeal before or at the time of hearing." Assessee has raised the following additional grounds:- "Based on the facts and circumstances of the case and In law, Conduent Business Services India LLP (Erstwhile Xerox Business Services India Private limited) (hereinafter referred to as the 'Appellant'), respectfully craves leave to file additional grounds of appeal, In addition to the grounds of appeal filed previously by the Appellant on March 4,2016 (revised Form 36 filed on October 15, 2020), which is detailed herein below. 29. The learned AO/TPO/DRP erred In facts and In law, by excluding following comparables from-the-final list of comparables: (a) Microgenetics Systems Limited (b) Informed Technologies India Limited (c) Cosmic Global limited (d) Mindtree Limited (e) e4e Healthcare Business Services Private Limited. 30. The learned AO/TPO/DRP erred in facts and In law, by Including ICRA Online Limited in the final list of comparables. 31. Without prejudice to other grounds of appeal, in the facts and in the circumstances of the case and In law, the learned AO/TPO has erred in computation of operating margin of fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly, this ground does not require any adjudication as we have remitted Ground No. 25 to 25.2 to AO for fresh consideration. However, this ground is kept open to argue in appropriate stage if so warranted. 9. Ground No. 27 is with regard to initiating penalty proceedings under Section 271(1)(c) of the Act, which does not require adjudication at this stage. 10. Further, Ground No. 28 is only consequential. 11. With regard to ITES segment (Ground 29(a)(b) & (c) which are not pressed, accordingly dismissed as not pressed. 12. Ground No. 29 and additional ground with regard to ITES segment in ground No. 29(d) and 29(e), assessee wanted inclusion of the following comparables:- i) Mindtree Limited ii) e4e Healthcare Business Services Pvt. Ltd. 12.1. It is noted that the Department also in appeal Ground No. 7 and 11 wanted inclusion of these two comparables in ITP segment. Accordingly, we direct the AO/TPO to include these 2 comparables in the list of comparables while determining the ALP in segment. These grounds of the assessee as well as the Revenue are allowed. 13. In Ground No. 30, the assessee wanted exclusion of ICRA Online Limited from the list of comparables. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se decisions that under TNM method that every ingredient of profit margins of comparable companies are analysed, whether it is positive or negative. The decision proceeds on the basis of effect on price owing to working capital requirement. We are of the view that working capital adjustment itself is computed on the basis of outstanding current assets and liabilities at the year end. It means that other things being equal, an entity having higher working capital will incur more interest cost which will reduce profitability. Hence no importance shall be given to pricing aspect. Since the assessee does not have any working capital risk, the question of negative working does not arise." 15.1. Respectfully following the above order of the Tribunal we are of the opinion that the assessee having no working capital risk no negative working capital adjustment is called for. Accordingly, this ground of the assessee is allowed. The appeal of the assessee is allowed for statistical purposes. ITA No. 202/Bang/2016: AY 2011-12 (Revenue's Appeal) 16. Ground Nos. 1 to 4 of the appeal is infructuous in view of issue is settled by the MAP and this issue relates to Corporate Segment in assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are in the nature of Knowledge Process Outsourcing (KPO). The high end services provided by the company cannot be compared with the routine services provided by the assessee. This company is therefor to be excluded from the list of comparable companies." In view of the above order of the Tribunal, the above said company is to be excluded from the list of comparables. iii) e4-e Healthcare Business Services Pvt. Ltd. and Mindtree Ltd.: As discussed in the earlier part of this order vide para 15, these companies are excluded while deciding the assessee's appeal. Accordingly, these companies are excluded from the list of comparables. iv) Infosis BPO Ltd.: After hearing both the partis this company is excluded in the case of Dell International Service India P. Ltd. in ITA No. 593/Bang/2016 for AY 2011-12 dated 01.09.2021 wherein it is held as under:- 25. The revenue is challenging exclusion of Infosys BPO Limited by Ld. DRP. Before us the Ld. A.R. placed reliance on the decision rendered by Hon'ble Delhi High Court in the case of PCIT Vs. H & S Software Development and Knowledge Management Centre Pvt. Ltd. (Order dated 3.1.2018 passed in ITA No. 912/2017). We notice t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as comparable company for the reason that the details regarding its diverse functions are reported under one segment without segmental details regarding the same being made available. Therefore, the comparability of the company cannot be determined. It is seen that iGate is engaged in provision of varied services and no segmental breakup of the same is available in its Annual Report. Further, the company's' software services segment is clubbed with its ITES segment and there is no breakup between the revenues generated from the two segments. During the year under consideration, the company has acquired majority equity interest in Patni Computer Systems Ltd. rendering it incomparable due to it failing the TPO's own filter of having peculiar economic circumstances. In addition, the company owns significant intangibles in its name, which is evident from the balance sheet of the company for the Financial Year 2010-11. For the reasons above, the company is not comparable to the Assessee and the DRP's findings on exclusion of iGate is right in law. As far as the company ICRA Online Ltd., is ITA No. 2900/Bang/2018 Page 8 of 16 concerned, the DRP excluded this company for ..... X X X X Extracts X X X X X X X X Extracts X X X X
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