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Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE
Before: SHRI R.S. SYAL & SHRI S.S. VISWANETHRA RAVI
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.
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
2 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
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.
The only issue raised in this appeal is against the transfer
pricing adjustment of Rs.29,47,928/- made by the AO.
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
3 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
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.
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
4 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
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.
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
5 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
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,
6 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
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
7 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
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.
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.
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,
8 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
we hold that the forex gain should be treated as an item of
operating revenue. This ground, is therefore, allowed.
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.
In the result, the appeal is allowed for statistical purposes. Order pronounced in the Open Court on 29th July, 2022.
Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 29th 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 िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे “C” / DR 4. ‘C’, ITAT, Pune गाड� फाईल / Guard file 5.
आदेशानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune
9 ITA No.331/PUN/2021 Transperfect Solutions India Pvt. Ltd.,
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 JM second member 4. Draft discussed/approved by Second JM Member. 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. *