Income Tax Appellate Tribunal - Bangalore
E4E Business Solutions India Private ... vs Deputy Commissioner Of Income-Tax , ... on 13 January, 2017
IT(TP)A.1397/Bang/2016 Page - 1
IN THE INCOME TAX APPELLATE TRIBUNAL
BENGALURU, BENCH 'A', BENGALURU
BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER
AND
SHRI S. JAYARAMAN, ACCOUNTANT MEMBER
I.T (TP).A No.1397/Bang/2016
(Assessment Year : 2011-12)
M/s. e4e Business Solutions India P.Ltd,
5th floor, Vakil Square, Bannerghatta Road,
Bengaluru - 560 029 .. Appellant
PAN : AAACI6324A
v.
Deputy Commissioner of Income Tax,
Circle - 3(1)(2), Bengaluru 560 001 .. Respondent
Assessee by : Shri. Sharat Rao, CA
Revenue by : Shri. Kamaladhar, Standing Counsel
Heard on : 18.10.2016
Pronounced on : 13 .01.2017
ORDER
PER S. JAYARAMAN, ACCOUNTANT MEMBER :
This is an appeal filed by the assessee against the order of CIT (A), Bengaluru -2, dt.19.07.2016, for the assessment year 2011-12.
02. The facts in brief are that the e4e Business Solutions India Private Limited , formerly known as iSeva Systems Private Limited, the assessee, is engaged in the business of customer relationship management services and related business process outsourcing services through a variety of customer contract channels such as voice, e-mail, chat and web-
IT(TP)A.1397/Bang/2016 Page - 2 based services. It acquired all the business (all assets, liabilities, employees and business) from e4e Tech Support (India) Private Limited, a group company, with effect from April 1, 2007 on slump sale basis. Consequently, it has also started rendering infrastructure management services, which is in the nature of Information Technology Enabled Services ("ITES"). e4e India renders such IT enabled services to its Associated Enterprises ("AEs") and other third parties.
03. For the assessment year ("a y ") 2011-12, it e-filed its return on November 30, 2011 declaring a taxable income of INR 11,13,09,999. In its TP study, it has adopted Transactional Net Margin Method ("TNMM") as the most appropriate method ("MAM") to arrive at the Arm's length price ("ALP) in respect of ITES, the Profit Level Indicator ("PLI") adopted is operating profit to the total costs as applicable to the AE segment alone .
On this basis, it had computed its PLI @ 15.74 percent. It has selected 9 comparable companies with an arithmetic mean of 15.82 % and since it fell within the specified range of 5 percent variation, treated the price of its international transaction at arm's length.
04. However, the Transfer Pricing Officer (TPO) rejected its TP Documentation for the reason , inter alia, that it had used multiple year data, re-determined the ALP considering 10 companies as comparable with certain filters , which included 3 & 7 companies selected by the assessee & new ones , respectively, with "TNMM" as the "MAM" with an adjusted margin at 31.02% after giving working capital adjustments. Thus, IT(TP)A.1397/Bang/2016 Page - 3 the TPO made an addition of Rs.136,642,740/- to the returned income.
05. On the Corporate Tax front, while computing deduction u/s 10A , the assessee had excluded telecommunication charges at INR 85 04,197 and travel expenditure at INR 16,10,128 incurred in foreign currency from export turnover as well as from total turnover. However, the AO reduced them from the export turnover alone and recomputed a lesser deduction u/s 10A ie made an addition of INR 1,520,719 to the returned income on this count alone. Since the assessee did not file objections before the DRP, the AO passed a final order determining the total income at Rs.
249,473,458/-.
06. Aggrieved, the assessee filed an appeal before the CIT(A) . The CIT (A) upheld the TP adjustments and on the corporate tax front , relying on the ratio of the Jurisdictional High Court reported in Tata Elxsi in 349 ITR 98, the CIT (A) directed the AO to reduce the expenditure incurred in foreign currency not only from export turnover but also from the total turnover . On the CIT (A) order, the assessee filed this appeal with following grounds of appeal.
IT(TP)A.1397/Bang/2016 Page - 4 IT(TP)A.1397/Bang/2016 Page - 5
07. The AR submitted that the appellant has rendered similar service to third parties, the margin earned by the appellant from its AE is comparable to the margin earned by it from third parties and hence its international transactions should be accepted at arm's length. Further, it is submitted that this Tribunal has also accepted the application of internal TNMM in its case in ay 2010-11 in IT(TP)A No 324(B)/2015 dt 04.11.2015. On such plea, the CIT (A) held , inter alia, that "TNMM has been upheld by the ITAT for ays 2007-08,2008-09,& 2009-10. Also, it is seen that the Managed Service business which catered primarily to the Non-AE business has been sold w e f 08.02.2011, and therefore, a comparison of internal TNMM is not possible as the comparison is not of the same period in respect of AE and non-AE business" with which we are in agreement. Hence, the corresponding grounds of appeal fail.
08. On the TP matters, the AR submitted that the following comparables are to be rejected as they are functionally different, fails RPT filter etc . The gist of his arguments and the cases relied on, are as under:
1. Accentia Technologies Ltd :
A. Functionally different :
Earns income from Medical Transcription business, billings and collections and coding activities(Schedule 8 of Finanacials ) as evidenced in page 773 of paper book vol-11 .
IT(TP)A.1397/Bang/2016 Page - 6 B. Presence of goodwill, brands, IPRs 0wns goodwill, brands and IPRs as evidenced in page 729 of paper book vol-11 .
C. Extra-ordinary events Merger of Geosoft Technologies Ltd and Iridium Technologies P. Ltd as evidenced in page 727 of paper book vol-11 .
D. Rejected by ITAT in earlier years :
Rejected in assessee's own case for a y 2008-09- IT (TP)A.1783/Bang/2013) and a y 2009-10; IT(TP)A.1777/Bang/2013] on the above basis.
2. Acropetal Technologies Ltd :
A. Functionally different :
Engaged in engineering design services which is not ITES as held by Bangalore ITAT in the case of Symphony Marketing Solutions India P. Ltd [ITA No.1316/Bang/2012) and Global E Business Operations [IT(TP)A No.1678/Bang/2012 as evidenced in page 781of paper book vol-11 .
B. Fails Onsite Cost filter :
Onsite development cost is 47% and thus not comparable to e4e as upheld by DRP for A. Y. 2010-11 as evidenced in page 472 of paper book vol-1 and pages 809,815 & 816 of paper book vol-11 .
C. Fails employee cost filter :
IT(TP)A.1397/Bang/2016 Page - 7 Employee cost is only 11.51% of total cost. Not comparable as upheld by DRP for a y 2010-11 by applying same filter as evidenced in page 472 of paper book vol-1 and pages 809,815 & 816 of paper book vol-11 .
D. Rejected by ITAT in earlier years :
Rejected in assessee's own case for a y 2008-09 IT(TP)A.1783/Bang/2013) and a y 2009-10; IT(TP)A.1777/Bang/2013] on the above basis.
3. Infosys BPO Ltd :
A. Functionally different :
Has tremendous brand value which impacts pricing in the market and consequently the margin earned. Also company has incurred huge selling and marketing cost. Also company has spent significant amounts to build and retain brand value.
B. High turnover :
Has turnover of Rs.1,129.11 crores as compared to assessee's turnover of Rs.46.45 crores. On applying filter of ten times of turnover filter, the higher limit is Rs.464.5 crores and the margin of Infosys BPO clearly exceeds this limit as evidenced in page 1102 of paper book vol-11 .
C. Rejected earlier :
In assessee's own case for a y 2007-08 in IT(TP)A.819/Bang/2011 ; for a y 2008-09 in IT(TP)A.1783/Bang/2013; and for a y 2009-10 in IT(TP)A.1777/Bang/2013.
Hyderabad ITAT in Excellence Data Research P. Ltd in ITA No.159/Hyd/2014.
Bangalore Bench in Symphony Marketing Solutions India P. Ltd [ITA.1316/Bang/2012) IT(TP)A.1397/Bang/2016 Page - 8
Hyderabad Bench in International Speciality Products (I) P. Ltd [ITA No.218/Hyd/2014.
09. We have considered the rival submissions and gone through relevant materials .The relevant portion of the order from the assesse's case in IT (TP)A no. 1845/Bang/2015 & IT(TP)A.1777/Bang/2013 dt 10.11.2015 for ay 2009-10 is extracted as under :
"Accentia Technologies Ltd :
..................................................................................... ....................................................................................
(iii) As regards the functional dissimilarity, we note that Accentia Technologies Ltd is engaged in diversified activity of medical transcription, medical coding, billing, receivable management. Thus it is clear that the said company is engaged in the healthcare activity and providing specific services of medical transcription, medical coding, medical billing etc., We note that these activities are quite different from the service of contact centre provided by the assessee to its AE which is purely in the nature of call centre. Therefore, we are of the view that the company Accentia Technologies Ltd cannot be considered as a functionally comparable company with the services provided by the assessee to its AE. The TPO is directed to exclude the company from the set of comparables.
10. The relevant portion of the order from the assesse's case in IT (TP)A no. 1765/Bang/2013 & IT(TP)A.1783/Bang/2013 dt 04.11.2015 for ay 2008-09 is extracted as under :
" 6.3. Acropetal Technologies Ltd :
6.3.1. The learned Authorised Representative for the assessee submitted that this company, selected by the TPO, is functionally different from the assessee as apart from being engaged in the business of export of software services, it is also engaged in rendering engineering design services and software development Services which are high end service and require highly skilled employees, whereas the ussessee in the case on hand is engaged in providing low end, routine BPO services. In support of its proposition for IT(TP)A.1397/Bang/2016 Page - 9 exclusion of this company from the list of comparables on grounds of functional differences, the learned Authorised Representative of the assessee, inter aira, placed reliance on the decision of the ca-ordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) for A.Y. 2008-09 wherein this company was excluded from the list of comparables.
6.3.2 Per contra, the learned Departmental Representative supported the orders of the TPO in including this company as a comparable to the assessee.
6.3.3 We have heard the rival contentions and perused and carefully considered the material on record, including the judicial pronouncement cited by the assessee. We find that the coordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt ltd. (supra) held this company to be functionally different from the assessees performing ITES / BPO back end support services whereas, Acropetal Technologies Ltd.:
segmental revenues show that its major source of income is from providing engineering design services and information technology services which are knowledge process outsourcing services (KPO) and not BPO / ITES low end BP0 services, like those performed by the assessee in the case on hand. At paras 12 and 13 of its order, the co-ordinate bench has held as under
"12. This company is listed at SI No, 2 of the comparables chosen by the TRO. As for as this company is concerned, the objection of the assessee is that this company is not functionally comparable. The assessee is a BPO company that provides market analytics and data management services. To provide market analytics solutions, the assessee gives strategies that impact on client revenue including data based marketing strategies for customer acquisition, devising customer retention strategies and excluding loss mitigation strategies through cutting edge forecasting fools. The data management services provided by the assessee include routine business data reporting and management, website management, market/rig data analysis and top line reporting As far as Acropetal Technologies Ltd. is concerned, this company does the business of export of software services. It is also seen front segmental revenue of this company (Note 15 to the notes on accounts to Annual Report for 07-08) that it derives income from engineering design services and software development services, It is also pertinent to point out that before the TPO, the assessee raised an objection that this company performs different functions and mainly engaged in the area of software development services and engineering design services. The TPO in his order has observed that the services rendered by this company fell in the definition of ITES.
IT(TP)A.1397/Bang/2016 Page - 10
13. We have considered the submissions of the learned counsel for the Assessee. On a perusal of the Note No. 15 of notes to accounts which gives segmental revenue of this company, it is clear that the major source of income for this company is from providing Engineering Design Services and information Technology Services. This functions performed by the Engineering Design Services segment of the company cannot be considered as comparable to the ITES/BPO functions performed by the Assessee. The performance of Engineering Design Services is regarded as providing high end services among the BPO, which requires high skill whereas the services performed by the Assessee are routine low end ITES functions. We therefore hold that this company could not have been selected as a comparable, especially when it performs engineering design services which only a Knowledge Process Outsourcing [KPO] would do and not a Business Process Outsourcing [BPO].
Following the above decision of the co-ordinate bench in the case of Symphony Marketing Solutions India Pvt. Ltd (supra) for Assessment Year 2008-09, we ore of the view that in the case on hand also, where the assessee is only providing ITES / BPO based low end support services, this company i.e. Acropetal Technologies Ltd. providing KPO services is to be excluded from the list of comparables as it not functionally comparable to the assessee, in the case on hand. We hold and direct the TPO accordingly. "
11. The relevant portion of the order from the assesse's case in IT (TP)A no. 1765/Bang/2013 & IT(TP)A.1783/Bang/2013 dt 04.11.2015 for ay 2008-09 is extracted as under :
" 6.7 Infosys BPO Ltd.
6.7.1 As far as this company, chosen by the TPO as comparable, is concerned, the learned Authorised Representative for the assessee submitted that this company, being a wholly owned subsidiary of Infosys Technologies Ltd. would enjoy a premium in the market, due to brand value and goodwill of the parent company, whereas the assessee is a low end provider of BPO / ITES support services. It is submitted that Infosys BPO Ltd. incurred huge selling and marketing expenses and is not only a market leader but also has huge, breadth in terms of economies of scale with diversity and worldwide geographical dispersion of customers. It is IT(TP)A.1397/Bang/2016 Page - 11 submitted that in view of these factors, Infosys BPO Ltd. is functionally dis- similar and different from the assessee in the case on hand. In support of its proposition for excluding this company from the list of comparables, the learned Authorised Representative placed reliance on the decision of the co- ordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) for Assessment Year 2008-09 wherein this company was excluded from the set of comparables.
6.7.2 Per contra, the learned Departmental Representative supported the orders of the TPO in including this company as a comparable to the assessee. 6.7.3 We have heard the rival contentions and perused and carefully considered the material on record; including the judicial pronouncement relied on by the assessee. We find that the coordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) for Assessment Year 2008-09 has excluded this company i.e. Infosys BPO Ltd. from the list of comparables to low end ITES / BPO support service providers as it is functionally different being an established market leader, enjoying huge brand value and goodwill, with huge economies of scale and diversity and geographical dispersion of customers. At para 24 of its order, the co-ordinate bench has held as under :-
" (7) Infosys BPO Ltd
24. This company is listed at Sl.13 in the list of comparable companies chosen by the TPO. As far as this company is concerned, it is the submission of the ld. counsel for the assessee that this company has a brand value and therefore there would be significant influence in the pricing policy which will impact the margins. Schedule 13 to the profit & loss account of this company for the F.Y. 2007-08 shows that this company incurred huge selling and marketing expenses. Page 133 of the annual report of this company for the F.Y. 2007-08 shows that this company realizing its brand value has chosen to value the same on the basis of its earnings and that of Infosys. The brand value of the Assessee and Infosys has been valued at Rs.31,863 Crores. Infosys BPO, being a subsidiary of Infosys, has an element of brand value associated with it. This is also clear from the presence of brand related expenses incurred by this company. Presence of a brand commands premium price and the customers would be willing to pay, for the services/products of the company. Infosys BPO is an established player who is not only a market leader but also a company employing sheer breadth in terms of economies of scale and diversity and geographical dispersion of customers.
The presence of the aforesaid factors will take this company out of the list of comparables. We therefore accept the contention of the assessee that this company cannot be regarded as a comparable."
IT(TP)A.1397/Bang/2016 Page - 12 Following the above cited decision of the co-ordinate bench of this Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) for Assessment Year 2008-09, we are of the view that in the case on hand also, where the assessee is only providing low end ITES / BPO support services, this company i.e. Infosys BPO Ltd. is to be excluded from the list of comparables to the assessee in the case on hand. We hold and direct the TPO accordingly.
Thus, the assessee has made out a case in its favour from the above decisions. Following them, the TPO is directed to exclude Accentia Technologies Ltd , Acropetal Technologies Ltd & Infosys BPO Ltd from the list comparables and the assessee's corresponding appeal grounds are allowed.
12. On ICRA Online Ltd (Seg), the gist of the AR's arguments are as under:
A. Functionally different :
It is a KPO which is different from BPO as held in First Advantage Offshore P. Ltd (ITA.1096/Bang/2011), Symphony Marketing Solutions India P. Ltd [ITA.1316/Bang/2012) and Capital IQ Information Systems (India) P. Ltd [ITA.1961/Hyd/2011].
B. Rejected by DRP in a y 2010-11 :
Rejected by DRP in a y 2010-11 for failing export earning filter of 75% and the current year export earning is 64% only.
13. We have considered the rival submissions and gone through relevant materials. The relevant portion of the order from the case of First Advantage Offshore Services P. Ltd (ITA.1096/Bang/2011) for ay 2007-08 dt 30.4.2013 is extracted as under :
IT(TP)A.1397/Bang/2016 Page - 13 "36. As far as 3rd group is concerned, the learned counsel for the assessee submitted that this group consists of-
1) Bodhtree Consulting Ltd. 2) Eclerx Services Ltd. 3) Mold Tek Technologies Ltd,
37. According to the learne d counsel for the asse ssee, these companies are functionally different from the assessee. He submitted that . the assessee is basically a 'call centre', whereas these three companies are into the business of 'knowledge process out sourcing (KPO)'. He submitted that while the assessee is into simple activities like credit check, in house support, bill search, people search, high check, automated services, document management etc. while the 'knowledge process outsourcing' includes specialized customer & software solutions such as data cleansing, e-learning and e-paper solution and also earns revenue from software products. As far as Eclerx Services Ltd. is concerned, he submitted that it is engaged in providing data process and analytics services as is evident from the website of the company. As regards Mold Tek Technologies Ltd., is concerned, he submitted that it is providing high-end engineering design and detailing services which are appropriately categorized as structural engineering services and are high end engineering services and cannot be considered as comparable to the ITES services rendered by the assessee. Thus, according to him, these three companies being functionally different from the assessee are to be excluded from the list of comparables. In support of his contention, he placed reliance upon the decision of 'A' Bench of the Tribunal at Hyderabad in the case of M/s Capital 1Q information Systems (India) Pvt. Ltd, in ITA No 1961/Hyd/2011 dated 23.11. 2012, wherein the Tribunal has directed that Mold Tek Technologies Ltd is to be excluded from the list of comparables because of 'exceptional result' due to merger/demerger and also on account of 'super normal profit' of 113%. He placed reliance upon the decision of this Tribunal in the case of Mercedes Benz Research & Development India Pvt. Ltd., wherein it has been held that the companies showing abnormal profits cannot be treated as comparable.
38. The learned DR, on the other hand, supported the orders of the authorities below and submitted that the assessee has failed to establish that the nature of activities performed by the assessee are different from the companies which according to the assessee are functionally different. He submitted that it is the bounden duty of the assessee to establish that the comparables IT(TP)A.1397/Bang/2016 Page - 14 selected by the TPO are not comparable to the assessee. Having heard both the parties and having considered their rival contentions, we find that the assessee had raised elaborate objections each of the comparables in group 3 before the TPO. The TPO has also reproduced the said objections in his order para 6.5.1 of page 178 of his order. He has rejected the contention of the assessee by holding that every function within BPO sector can be from low end to high end and the activities of the assessee such as accounting, web m a n a g e m e n t , n e t w o rk m a n a g e m e n t a r e B P O s e r v i c e s u s i n g technology but these services are not categorized as KPO. He held that a call centre may offer support services like telemarketing to high end services like technical support services, where not only the level of knowledge, skill required would be high, but the technical knowledge as well would be high. According to him, back office transaction process services may be as remarkable and as complicated as insurance/market transaction processing services. He, therefore, rejected the contention of the assessee and treated the BPO as equivalent to KPO services.
40. We have to now conside r whethe r a BPO and a K PO are functionally similar and are comparable to each other. BPO is a subset of outscoring and involves the contracting of the operations and responsibilities of specific business functions or process to a third party services provider. Often business processes outsourcing are information technology based and referred to as ITES-BPO. KPO is one of the sub-segment of the BPO industry. It involves outsourcing of core i n f o r m a t i o n r e l a t e d b u s i n e s s a c t i v i t i e s w h i c h a r e c o m p e t i t i v e l y i m p o r t a n t o r f o r m a n integral part of a company's value chain. It thus requires advanced analytical and technical skills as well as a high degree of specialist expertise. The KPO services include all kinds of research and information gathering. Thus it can be seen that even though both BPO and KPO are offering information Technology based services, the skill and expertise and may be even the tools required are different which may result in different economic results of both the segments. Thus in such circumstances, we are of the opinion that they cannot be compared with each other and have to be excluded from the list of comparables."
From the above, it is clear that those whose functions are of High end services among the BPO, which require high skill can not be compared IT(TP)A.1397/Bang/2016 Page - 15 with the ITES/BPO functions performed by the assessee which are routine low end ITES functions. However, we find that the profile of ICRA Online Ltd (Seg) is not available although the assessee objected this case being included by the TPO on functional difference. In the facts and circumstances, this issue is set aside to the TPO who woud re-
adjudicate it in the light of the above decisions after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes.
14. On Jeevan Scientific Technology Ltd , the gist of the AR's arguments are as under:
A. Fails TPO's own filter of ITES and related services ie less than 75% of total income. Foreign earning is only 32.1% at entity level and 46% at segment level as evidenced in page 1038 of paper book vol-11 and the AR furnished the workings as given below.
B. Low employee cost : ie employee cost at 26% only as evidenced in page 473 of paper book vol-1 and pages 1030 & 1034 of paper book vol-11
IT(TP)A.1397/Bang/2016 Page - 16 We have considered the rival submissions and gone through relevant material. Although, the assessee objected this case before the TPO, the TPO inter alia rejected stating that the assessee accepted this comparable in the earlier year. In the facts and circumstances, this issue is set aside to the TPO who would re-adjudicate it after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes.
15. On iGate Global Solutions Ltd , the gist of his arguments are as under:
A. Functionally different :
Renders both IT and ITES services and provides both onshore and offshore services.
As per the segmental information provided by iGate, it is engaged in the business of software development and services, contact center services and IT Enables services is considered as the only business segment as evidenced in page 1244 of paper book vol-11 .
B. Extra-ordinary events :
Amalgamation of iGate Global Solutions Sdn Bhd, Malaysia with the company during the period ended 31st March 2010. Also acquired majority stake in Patni Computer Systems Ltd as evidenced in page 1244 of paper book vol-11 .
C. Presence of intangibles :
9.08% of asset base comprises of intangibles (both acquired goodwill and other intangibles). Appellant has none as evidenced in page 1292 of paper book vol-11 .
IT(TP)A.1397/Bang/2016 Page - 17 D. High Turnover of Rs.1,184.55 crores.
We have considered the rival submissions and gone through relevant material. Although, the assessee objected this case before the TPO, the TPO inter alia , rejected it stating that iGate Global Solutions Ltd considers all services under ITES. In the facts and circumstances, this issue is set aside to the TPO who would re-adjudicate it after affording due opportunity to the assessee. The corresponding appeal ground is treated as allowed for statistical purposes.
16. The next issue is computation of deduction u/s 10A . In this regard, the AR relied on this Tribunal decision in ITA No 324(B)/2015 dt 04.11.2015 in its own case for ay 2010-11. The relevant portion is extracted as under :
"8.6 Against the final assessment order both assessee and the department are in appeal. The assessee has raised ground no.11. The ground raised in the department appeal in IT (TP)A No.220(B)/2015 is as follows;
"1. The directions of the DRP are opposed to law and facts of the case.
2. On the facts and in the circumstances of the case the DRP erred in law in directing the AO to exclude reimbursement of specific expenditure both from the export turnover as well as from total turnover for the purpose of computation of deduction u/s 10A, without appreciating the fact that the statute allows exclusion of such expenditure only from export turnover by way of specific definition of export turnover as envisaged by Sub-clause(4) of Explanation 2 below Sub-section (8) of Section 10A and the total turnover has not been defined in this section.
3. On the facts and circumstances of the case the DRP erred in directing the AO to compute deduction u/s 10A in the above manner by placing reliance on the decision of Hon'ble High Court of Karnataka in the case of M/s Tata Elxsi Ltd. which has not become IT(TP)A.1397/Bang/2016 Page - 18 final since the same has not been accepted by the Department and SLPs are pending before the Hon'ble Supreme Court.
4. For these and other grounds that may be urged at the time of hearing, it is prayed that the directions of the DRP in so far as it relates to the above grounds may be reversed.
5. The assessee craves leave to add, alter, amend and/or delete any of the grounds mentioned above".
9. The learned counsel for the assessee submitted before us that the telecommunication expenses and travel expenses incurred in foreign currency should not be reduced from both ET and TT as the same have not been incurred towards rendering of technical services outside India as contemplated under section 10A of the Act. 9.1 The learned counsel for the assessee submitted that the second limb of the definition of ET under section 10A of the Act, provides for exclusion of expenditure incurred in foreign currency in connection with providing 'the' technical services outside India. The presence of the word 'the' before the term 'technical service' indicates that the assessee needs to provide a particular or specific technical service outside India and expenses incurred in foreign currency in providing those technical services are to be excluded. Accordingly, this clause of exclusion of foreign currency expenditure would be applicable only if the assessee is providing technical services outside India. The above argument has been upheld in the following decisions; Jurisdictional Bangalore Bench of the ITAT in the case of Infosys Technologies Ltd. (108 TTJ 282).
Jurisdictional Bangalore Bench of ITAT in the case of Robert Bosch Engineering and Business Solutions Ltd. in ITA No.412/Bang/2011). Chennai Bench of ITAT in the case of iNautix Technologies Pv.Ltd. (ITA Nos.541/Mds/2006, 1439/Mds/2007, 20191/Mds/2010 to 2093/Mds/2010). Chennai Bench of ITAT in the case of Cognizant Technologies Soluions India Pvt.Ltd. (ITA No.209/Mds/2007); and Hyderabad Bench of ITAT in the case of Patni Telecom Pvt.Ltd. (308 ITR 414).
9.2 We have heard both parties. Following the Patni Telecom Pvt. Ltd., we are of the opinion, that e4e is not involved in rendering technical services outside India, but it in the business of export of BPO services as contemplated under the provisions of section 10A of the Act from its offshore centre in India. It is not engaged in rendering onsite services and therefore, telecommunication expenses and travel expenses incurred in foreign currency should not be excluded from the ET and TT in computing the eligible relief under section 10A of the Act.
IT(TP)A.1397/Bang/2016 Page - 19 9.3 Further, BPO services, undertaken for the purposes of export cannot be equated to providing technical services outside India solely for the purpose of excluding travel expenses incurred in foreign currency from the ET as envisaged in the definition of 'export turnover' as provided in section 10A of the IT Act. Accordingly, the adjustment made by the AO is to be quashed in entirety. We direct the AO to re-work the same. Since we have decided ground No.11, in assessee's appeal the grounds raised by revenue in IT(TP)A No.220(B)/2015 are dismissed."
Following the above decision, the adjustment made by the AO is quashed in entirety. We direct the AO to re-work the same as per the above decision.
17. In the result, the assessee's appeal is partly allowed as allowed for statistical purposes.
Order pronounced in the open court on 13th January , 2017.
Sd/- Sd/-
(SUNIL KUMAR YADAV) (S. JAYARAMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
MCN*
Copy to:
1. The assessee
2. The Assessing Officer
3. The Commissioner of Income Tax
4. The Commissioner of Income Tax (A)
5. DR
6. GF, ITAT, Bangalore
By Order
Assistant Registrar
IT(TP)A.1397/Bang/2016 Page - 20