APTARA TECHNOLOGIES PRIVATE LIMITED,,PUNE vs. DEPUTY COMMISSIONER OF INCOME-TAX,,

The assessee has raised following grounds of appeal: 1. Transfer Pricing adjustment The learned DCIT pursuant to the directions of the learned DRP erred in law and on the facts and in circumstances of the case in making an adjustment of Rs.3,69,15,740 to the value of international transactions entered into by the Appellant With its Associated Enterprises in respect of provision of Information Technology Enabled Services ["ITES"]. 2. Rejection of benchmarking analysis carried out by the Appellant The learned DCIT pursuant to the directions of the learned DRP erred in law and on the facts and in circumstances of the case in rejecting the benchmarking approach and methodology followed by the Appellant for benchmarking the international transaction of provision of ITES. 3. Erroneous selection of comparable companies The learned DCIT pursuant to the directions of learned DRP has erred in law and on the facts and in circumstances of the case in selecting the following comparable companies.  Accentia Technologies Ltd.  Acropetal Technologies Limited

The issue raised in the present appeal is against transfer pricing adjustment made by the Assessing Officer / Dispute Resolution Panel (DRP) / Transfer Pricing Officer (TPO) to the value of international transactions entered into by the assessee at ₹ 3,69,15,740/-.

Briefly, in the facts of the case, the assessee was providing e-learning solutions i.e. IT enabled services like content technology services, desktop technology services, e-learning and conversion services to its associated enterprises. Similar services were being provided by the assessee in earlier years also. The assessee applied TNMM method to benchmark its international transactions by adopting the PLI at Operating Profit (OP)/ Operating Cost (OC). The margins

The DRP rejected the objections raised by the assessee and consequent thereto, the Assessing Officer passed final assessment order making an adjustment of ₹ 3.69 crores to the value of international transactions entered into by the assessee with its associated enterprises in respect of provision of Information Technology Enabled Services.

The assessee is in appeal against the same.

The learned Authorized Representative for the assessee at the outset pointed out that grounds of appeal No.1, 2, 9 and 10 are general in nature, hence the same are dismissed.

With regard to ground of appeal No.3, the assessee is aggrieved by the selection of two comparables i.e. Accentia Technologies Ltd. and Acropetal Technologies Ltd. on the ground that Accentia Technologies Ltd. was engaged in rendering KPO services in healthcare sector and there were extraordinary events, wherein it had acquired strategic Tangent Corporation, a software development company having expertise in development of software related to EMR and SaaS.

The learned Authorized Representative for the assessee before us has pointed out that the second issue raised by way of ground of appeal No.4 was against the orders of authorities below in not considering foreign exchange gain as operating income while calculating the PLI of assessee. He further pointed out that the said issue stands covered by series of decisions of the Pune Bench of Tribunal. The learned Authorized Representative for the assessee also pointed out that in case Accentia Technologies Ltd. is excluded and foreign exchange gain is treated as operating revenue, then the margins shown by the assessee were within +/-5% of the mean margins shown by the comparables and no adjustment needs to be made. The learned Authorized Representative for the assessee further pointed out that another issue which is to be decided in the case of assessee is inclusion of the concern C & K Management Ltd., which was functionally comparable company. However, the said concern was excluded on the ground that no annual report was provided during transfer pricing assessment proceedings. The assessee points out that the financials of the said concern are available and have been placed at pages 967 to 1001 of Paper Book and functional comparability of the said concern may be verified by the Assessing Officer and if found to be comparable, then the same may be included.

Coming to ground of appeal No.7 which is against risk adjustment to be allowed in the hands of assessee, the learned Authorized Representative for the assessee in this regard placed reliance on the ratio laid down by the Pune Bench of Tribunal in Starent Networks India (P) Ltd. Vs. ACIT reported in 90 taxmann.com 367.

The learned Departmental Representative for the Revenue fairly admitted that foreign exchange gain is to be included in the operating revenue and for computation purpose, the same may be sent back to the file of Assessing Officer. In respect of exclusion of Accentia Technologies Ltd., the learned Departmental Representative for the Revenue placed reliance on the findings of DRP at page 31 and in respect of inclusion of C & K Management Ltd. and allowing risk adjustment, the learned Departmental Representative for the Revenue fairly admitted that the issue be restored back to the file of Assessing Officer / TPO.

We have heard the rival contentions and perused the record. The assessee was providing e-learning solutions i.e. IT enabled services like content technology services, desktop technology services, e-learning and conversion services to its associated enterprises for the value of ₹ 34,89,93,940/-. The assessee had applied TNMM method as most appropriate method and adopted PLI of OP/OC. The TPO has also applied TNMM method and PLI of OP/OC. However, transfer pricing adjustment has been made in the hands of assessee totaling ₹ 3.69 crores, against which the present appeal is filed before us. The DRP has partly allowed the objections raised by the assessee and the Assessing Officer has passed final assessment order. In the final analysis, following concerns were picked up as comparable:-

The mean margins shown by the assessee were 11.68% as against mean margins of comparables at 23.36% and hence, the TP adjustment in the hands of

Similar issue of exclusion of Accentia Technologies Ltd. was raised by the assessee being functionally not comparable in its own case in earlier years and the Tribunal in assessment years 2008-09 to 2010-11 has excluded the said concern as being not functionally comparable to the activities carried on by the assessee. The last finding of the Tribunal in cross appeals filed by the assessee and the Revenue in ITA No.259/PN/2015 and ITA No.579/PN/2015, relating to assessment year 2010-11, order dated 31.05.2016, wherein vide paras 12 to 15, the Tribunal had excluded the said concern as being not comparable. Further, the Hon’ble High Court of Delhi in Pr.CIT Vs. B.C. Management Services (P.) Ltd. (2018) 89 taxmann.com 68 (Del) for assessment year 2011-12 had held the said concern to be not comparable because of extraordinary event in assessment year 2011-12. Following the same parity of reasoning, we hold that the said concern is not to be included in the final set of comparables while benchmarking the international transactions of assessee.

Now, coming to the next aspect of the issue i.e. with regard to foreign exchange gain, the assessee claimed that foreign exchange fluctuations should be considered while computing PLI of tested party and also the comparables. However, the same was rejected by the TPO. The foreign exchange fluctuation is in respect of revenue earned from the associated enterprises vis-à-vis provision of ITES services and hence, the same forms part of the operating income / cost. The Assessing Officer / TPO is thus, directed to verify the claim of assessee in this regard and re-

Similar issue has been decided by the Hon’ble High Court of Delhi in Pr.CIT Vs. B.C. Management Services (P.) Ltd. (supra).

Now, coming to the last aspect of TP adjustment i.e. inclusion of a concern C & K Management Ltd., which was rejected by the TPO as no annual report was provided during the course of transfer pricing proceedings. The learned Authorized Representative for the assessee before us has enclosed the annual report of the said concern at pages 967 to 1001 of the Paper Book. Once the financials of the concern are available, then the same may be verified and applied by the TPO and in case the concern is functionally comparable, then the margins of said concern may be included in the final list of comparables.

The last issue raised by the assessee is non-granting of risk adjustment. The assessee claims that since it was captive service provider, then while picking up the comparables, which are full-fledged entrepreneurs, then the risk premium or additional return which the assessee would earn high return and in such cases, risk adjustment is to be allowed.

We find similar issue of allowing risk adjustment has been deliberated upon by the Tribunal in Starent Networks (India) Pvt. Ltd. Vs. ACIT (2018) 90 taxmann.com 367 (Pune-Trib.), wherein vide paras 34 to 36, it was held as under:- “34. Now, coming to the last issue in respect of economic adjustment on account of risk differences. The case of the assessee is that the assessee being remunerated on cost plus basis where it is providing services to its associated enterprises, it is risk

Accordingly, we direct the Assessing Officer to verify the above said claim of assessee and re-compute the margins of assessee and also the mean margins of

In the result, appeal of assessee is partly allowed.