TMI Blog2022 (12) TMI 1431X X X X Extracts X X X X X X X X Extracts X X X X ..... . M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. to examine and decide as per law. Interest rate charged on the trade receivable - AR had submitted that the Tribunal had allowed the credit period of 120 days as held in OSI Systems Pvt Ltd, Hyderabad [ 2020 (12) TMI 294 - ITAT HYDERABAD] and trade payables are required to be setoff against the trade receivables and the interest should be restricted to LIBOR plus 100 - CIT(A) has restricted the charging of interest at LIBOR +200 basis points allowing the credit period of 60 days - HELD THAT:- Though, the ld.AR cited the decision in the case of OSI System Pvt. Ltd.[Supra] but, the said decision is not applicable to the facts of the case as the Tribunal in the said case had held applicability of LIBOR +200 basis points to be applied on the trade receivables. Similarly, the Tribunal without assigning any reason has held that 120 days credit period is reasonable period. In our view, no documentary evidence has been brought on record before us so that we can infer that 120 days credit period is a reasonable period. CIT(A) after relying upon the decision of OSI Systems (sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat these companies are functionally dissimilar. 6. Any other ground that may be raised at the time of hearing. 3. The brief facts of the case are that the assessee company is in the business of Legal Process Outsourcing filed its Return of Income for the Assessment Year 2013-14 on 26.11.2013 declaring total income of Rs.13,37,63,440 and Book Profit u/s. 115JB at Rs.11,98,32,751. The case was selected for scrutiny and notices u/s. 143(2) and 142(1) were issued to the assessee In response, the assessee filed the information and after going through the information furnished and after a detailed discussion in the assessment order, the Assessing Officer completed the assessment by making adjustment to ALP u/s. 92CA(3) at Rs.6,53,49,980/- and assessed the total income at Rs.19,91,13,420 and Book Profit u/s. 115JB at Rs.9,86,46,186. Aggrieved by the assessment order, the assessee filed an appeal before the CIT (Appeals). The CIT (Appeals) partly allowed the appeal of the assessee. Aggrieved by the order of CIT (Appeals), the assessee is in appeal before us. M/s. Infosys BPO Ltd 4. Before us, Learned Departmental Representative submitted that the CIT (Appeals) was not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... YST INC with the profit earned by the said company. 5.1. On the other hand, the ld.AR had submitted that this company is functionally different as it is into KPO whereas the assessee is a BPO company. It was submitted that M/s. Eclerx Services Ltd has not been considered as comparable by the Assessing Officer / TPO for the A.Y. 2012-13 and 2010-11 in the set aside proceedings. He also relied upon the decision of Hon ble Delhi High Court in the case of Rampgreen Solutions (P.) Ltd. [2015] 60 taxmann.com 355 (Delhi) 35. As pointed out by the Special Bench of the Tribunal in Maersk Global Centers (India) (P.) Ltd. (supra), there may be cases where an entity may be rendering a mix of services some of which may be functionally comparable to a KPO while other services may not. In such cases a classification of BPO and KPO may not be feasible. Clearly, no straitjacket formula can be applied. In cases where the categorization of services rendered cannot be defined with certainty, it would be apposite to employ the broad functionality test and then exclude uncontrolled entities, which are found to be materially dissimilar in aspects and features that have a bearing on the profitabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ital IQ Information Systems (India) (P.) Ltd. (supra), wherein, the Tribunal directed the exclusion of eClerx as a comparable for the reason that it was engaged in providing KPO Services and further that it had also returned supernormal profits. 5.2. The learned Authorised Representative submitted that M/s. Eclerx Services Ltd. is not comparable since it is functionally different and relied on various ITAT decisions. Since there are no segmental details, expenditure incurred on outsourcing, we are of the opinion that the CIT (Appeals) is justified in excluding this company as comparable. 5.3. In rebuttal, the ld.DR for Revenue had submitted that the decision in the case of Rampgreen Solutions (supra) was for A.Y. 2008-09 and further, the Hon ble Supreme Court had admitted the SLP against the decision of Hon ble Delhi High Court. 5.4. We have heard the rival contentions of the parties and perused the material available on record. Admittedly, the functions of the assessee as well as e-Clerx have not change for the last two years i.e., from 2010-11 and 201213. Further, the Assessing Officer in these two years had not considered e-Clerx as a comparable. In view of the above, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o.161 and 2307/Hyd/2018. 6.4. The learned Authorised Representative submitted that these three companies namely M/s. Jindal Intellicom Pvt. Ltd., M/s. Informed Technologies Limited and M/s. Ace BPO Services Pvt. Ltd. are functionally not different and comparable with the assessee in RPT, 100% Revenue from medical transcription and BPO services. With respect to ACE BPO Services (P) Ltd, ld.AR submitted that it fulfills all the filters adopted by the TPO and further submitted that no related party transactions. 6.5. We have heard the rival contentions of the parties and perused the material available on record. The ld.CIT(A) had directed to include these comparables in the list of comparable after relying upon the decision in the case of Infor India Pvt Ltd in ITA No.161 and 2307/Hyd/2018. We have the occasion to go through the decision of Infor India (supra) in Paras 30 to 32 of the said decision, it was held by the Tribunal as under : 30 As regards inclusion of Ace BPO Services Ltd is concerned, it is the case of the assessee that this company satisfies all the filters applied by the TPO and therefore, is functionally comparable to the assessee company. He pointed out tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urposes. C.O. No.1/Hyd/2022 8. Now we will deal with the C.O. of the assessee. 8.1. The grounds raised by the C.O. reads as under : 1. The Learned Commissioner of Income Tax- Appeal is erred in upholding the rejection of Transfer pricing study of the Appellant. 2. The ld CIT(A) failed to appreciate that the Functions, Assets, and Risk (FAR) analysis is essential and not filters which come into play after FAR analysis. 3. Ld CIT(A} erred in non-inclusion of comparables which are comparable to the appellant, namely, Caliber point business solutions Ltd (Segmental) and R. Systems International Ltd ( Segmental). 4. Ld CIT(A) did not appreciate the principle of consistency in upholding the 75% export turnover filter. In earlier years in other cases 25% export filter was accepted and by adopting 75% export turnover filter the number of good comparables complying with FAR analysis get excluded, hence All sec Technologies Ltd was wrongly excluded. 5. Ld CIT(A} erred in non-exclusions of the following comparables which are not comparables to the appellant. A. Acropetal Technologies Ltd (Segment). B. Capgemini Business Services (India ) Ltd. C. Hartron ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have adopted TNMM as the method to arrive at the ALP of international transactions. Under TNMM the profit level is determined at the entity level and also at the net profit level. It appears that the AO/TPO had applied CUP for determination of ALP of outstanding receivables. I am of the view that bench marking has to be done with an ITES company and this international transaction cannot be bench marked with the interest rate charged either by banks or NBFC to arrive at the ALP. In this connection, I place reliance on the jurisdictional Hon'ble ITAT's recent decision in the following case: In OSI Systems Pvt. Ltd., Hyderabad in ITA No. 2228/Hyd/2017, it is held as under: 6.6 The next issue is rate of interest on receivables. In the instant case, the receivables represent the trade receipts and the same are required to be received in foreign exchange. The tribunal in the case of M/s. Value Labs Technologies Vs. /TO, ITA No. 1919/Hyd/2017 for AY 2013-14, vide order dated 05.04.2019 has held that in the case of export turnover, which required to be received in foreign exchange, the international transaction shall be considered at LIBOR + 200 basis points rate after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le arriving at the said conclusion distinguished its earlier order in the case of Kusum Healthcare (P.) Ltd v. Asstt. CIT [2015] 62 taxmann.com 79 (Delhi-Trib) and rejected the contention that interest gets subsumed in the working capital adjustment. The Hon`ble Bombay High court in the case of CIT v. Patni Computer Systems Ltd, [2013] 33 taxmann.com 3/215 Taxman 108 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 transaction having a bearing on the profits, income, losses or assets of such enterprises? 16. While answering the above question, the Hon'ble High Court noticed that an amendment to section 92B has been carried out by the Finance Act, 2012 with retrospective effect from 1-4-2002. Setting aside the view taken by the Tribunal, the Hon'ble High Court restored this issue to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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