Appeal Details
Counselvise Citation
[2022] 106 COUNSELVISE.COM (IT) 1661 (ITAT-PUNE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
11 month(s) 13 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-07-2022
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
C
Assessment Year
2016-2017
Appeal Filed On
15-08-2021
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “C”, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER ITA No.331/PUN/2021 नधा रण वष / Assessment Year: 2016-17 Transperfect Solutions India Pvt. Ltd., Unit No.7A to 7D, 7 th Floor, Western Icon, Aundh, Pune 411 007, Maharashtra. PAN : AAACQ1286B Vs. ACIT, Circle-7, Pune Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : This appeal by the assessee is directed against the final assessment order dated 24-03-2021 passed by the Assessing Officer (AO) u/s.143(3) r.w.s.144C(13) r.w. sections 143(3A) & 143(3B) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) in relation to the assessment year 2016-17. 2. The appeal is time barred by 85 days. The ld. AR stated that the delay in filing the appeal was caused due to Covid pandemic situation prevailing in the country at the material time. We are satisfied with the reason so stated. The Hon’ble Supreme Court in Assessee by Shri Kishor Phadke Revenue by Shri B. Koteswara Rao Date of hearing 29-07-2022 Date of pronouncement 29-07-2022 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 2 Cognizance for Extension of Limitation, In re 438 ITR 296 (SC) read with judgment in Cognizance for Extension of Limitation, In re 432 ITR 206 (SC) dated 08-03-2021 and 421 ITR 314 has taken a suo motu cognizance of the situation arising out of the challenges faced by the country on account of COVID-19 Virus and resultant difficulties that could be faced by the litigants across the country and accordingly extended the time limit for filing of the appeals. We, therefore, condone the delay in filing the instant appeal and admit the same for disposal on merits. 3. The only issue raised in this appeal is against the transfer pricing adjustment of Rs.29,47,928/- made by the AO. 4. Briefly stated, the facts of the case are that the assessee is engaged is providing I.T. enabled services in the nature of translation, website localization, software localization, testing, training and e-leaning. Return of income was filed declaring total income of Rs.2.69 crore. An international transaction of `Localization, Translation and other ITES” worth Rs.16,85,41,378/- was reported in Form No. 3CEB. The Assessing Officer (AO) made a reference to the Transfer Pricing Officer (TPO) for determining the Arm’s Length Price (ALP) of the ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 3 international transaction. The TPO shortlisted certain comparables and computed their arithmetic mean margin under the Transactional Net Margin Method (TNMM) at 21.17%. Applying the same, he proposed transfer pricing adjustment of Rs.29,47,928/-. No relief was allowed by the Dispute Resolution Panel (DRP), which led to the passing of the impugned order making the above adjustment. 5. We have heard both the sides and gone through the relevant material on record. The assessee has assailed inclusion/exclusion of certain comparables in/from the list of comparables. Before adverting to such disputed comparables, we consider it expedient to note the nature of services rendered by the assessee. The TPO briefly referred to the assessee company as engaged in providing I.T. enabled services in the nature of translation, website localization, software localization, testing, training and e-learning. The Transfer pricing study report of the assessee throws more light on the nature of services. Page 6 of the Transfer pricing study report gives further elaboration. The ‘Translation’ has been explained as converting Instruction manuals, Business agreements, Business products and Company brochures etc., into various languages as required by the clients. Then, the assessee also ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 4 carried out conversion of various websites of the clients into the localized languages, may be Hindi, Marati, or Tamil etc. Similar is done for the softwares developed by the clients. The assessee also carried out translation of ongoing training via remote e-learning courses. On going through the above nature of services, it can be seen that the assessee is mainly providing translation services of the literature meant for business use, websites and software of its clients. 6. Now we turn to examining the comparability or otherwise of the companies challenged before the Tribunal. (1) Insync Analytics India Pvt. Ltd. : 7.1 The TPO chose this company as comparable. The assessee’s objections about different functional profile etc., were rejected that led to its inclusion in the final list. No succor was provided by the DRP as well. 7.2 The Annual report of this company is available at page 730 of the paper book, from which it can be seen that the figure of sales to the Associated enterprises (Related parties) for the year under consideration stands at Rs.7.05 crore as against the total sales of Rs.13.90 crore. This gives us percentage of RPTs at 50.73%. The assessee has also given RPT percentage of this company for the ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 5 preceding two years at 100% and 97.53% respectively. This shows that the RPTs of this company are more than 50% in the current year and about 100% in the preceding two years. The company is albeit functionally comparable but has controlled transactions. The TPO has set out certain filters to be applied on page 4 of his order. One of the filters is that the companies with RPTs of less than 25% are selected. Since this company is failing the RPT filter applied by the TPO himself, which is otherwise also well recognized and approved by various Hon’ble High Courts, we hold that this company cannot be included in the list of comparables because of breaching the filter. We, therefore, direct to exclude it. (2) CES limited : 8.1 This comparable was also chosen by the TPO. The assessee’s objection that this company was engaged in rendering KPO services as well was not approved by the TPO, who went with its inclusion. 8.2 The Annual report of this company shows that it is engaged in both the IT and IT enabled services. As the company has segmental accounts, the TPO has considered only IT enabled services segment for the purposes of comparability. However, ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 6 what is important to note in the instant context is that the assessee is rendering only translation services etc., which fall within the overall domain of the BPO services. As against this, CES Limited is engaged in providing both BPO and KPO services as has been reported by it to the Registrar of companies in the requisite form. The Pune Benches of the Tribunal in Credence Resource Management Pvt. Ltd. Vs. ACIT (ITA No.133/PUN/2021) vide its order dated 18-06-2021 has noted that CES Limited is rendering both BPO and KPO services, discussing this issue at page 19 of the order. In view of the fact that the assessee is engaged in rendering only BPO services, CES Limited providing both BPO and KPO services, cannot therefore be held as comparable. We, therefore, direct to delete this company from the list of comparables. (3) Domex e-data Pvt. Ltd.: 9.1 The TPO considered this company as comparable. The assessee’s objections about functional differentiation were repelled, which led to the inclusion of this company. 9.2. A copy of the Annual report of this company has been placed at pages 679 onwards of the paper book. The Directors’ report states about the technology absorption in terms of: “The software development activity is carried out with the usage of very high end ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 7 software, hardware and the company always uses latest technology in development of software”. From the above portion of the Directors’ report, it is graphically clear that, apart from rendering IT enabled services, this company is also engaged in providing software development services. Though its revenue has been shown in a combined manner under one head of IT enabled services, but the above description of the activities makes it clear that it is also engaged in software development. As the assessee is engaged only in IT enabled services and not in software development, we order to exclude it from the list of comparables. 10. The next issue challenged by the assessee is against the treatment of Foreign Exchange Fluctuation (forex) loss as non- operating. The TPO treated the assessee’s forex loss as non- operating. No relief was allowed by the DRP. 11. It is undisputed even from the DRP directions that the forex gain pertains to business revenue of the assessee company. It has been held in several decisions rendered by the various courts of the country including the Hon’ble Delhi High Court in Pr.CIT Vs. BC Management Services Pvt. Ltd. (2018) 403 ITR 45 (Delhi) that foreign exchange gain or loss should be considered as operating in determining the operating margin. In view of the above precedent, ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 8 we hold that the forex gain should be treated as an item of operating revenue. This ground, is therefore, allowed. 12. To sum up, we set-aside the impugned order and remit the matter to the file of AO/TPO for re-determining the ALP of the international transaction in the light of the above adjudication on inclusion/exclusion of certain companies and treatment of forex gain as operating revenue. 13. In the result, the appeal is allowed for statistical purposes. Order pronounced in the Open Court on 29 th July, 2022. Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT प ु णे Pune; दनांक Dated : 29 th July, 2022 Satish आदेश क त ल प अ े षत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. यथ / The Respondent; 3. The DRP-3, Mumbai-1, 2 & 3 4. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, पुणे “C” / DR ‘C’, ITAT, Pune 5. गाड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd., 9 Date 1. Draft dictated on 29-07-2022 Sr.PS 2. Draft placed before author 29-07-2022 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *
Mehul