In the Income-Tax Appellate Tribunal,
                        Delhi Bench `I-2', New Delhi

            Before : Shri Bhavnesh Saini, Judicial Member And
                     Shri L.P. Sahu, Accountant Member

                         ITA No. 6980/Del./2017
                        Assessment Year: 2013-14

      Omniglobe Information                vs. Addl. CIT, Spcl.Range-7,
      Technologies (India) Pvt. Ltd.,          New Delhi.
      E-11, Rajouri Garden, New Delhi          (Respondent)
      PAN-AAACO 6606M
      (Appellant)

          Appellant by       Shri Abhishek Agarwal, Advocate
          Respondent by      Shri Sanjay Kumar Yadav, Sr. DR

                Date of Hearing                  19.07.2018
                Date of Pronouncement            15.10.2018


                                   ORDER
Per L.P. Sahu, A.M.:
     This is an appeal filed by the assessee against the order of the AO/TPO
passed u/s. 143(3)/92CA/144C of the IT Act dated 16.10.2017 passed in
pursuance to the direction of the DRP dated 25.08.2017 on the following
grounds of appeal :
     1.    That the assessing officer (`AO') erred on facts and in law in
     completing assessment under section 144C read with section 143(3) of the
     Income-tax Act, 1961 (`the Act') at an income of Rs. 4,72,94,133 as against
     returned income of Rs. 2,61,11,546.

     2.    That the AO erred on facts and in law in making adjustment of Rs
     2,11,82,587 to the arm's length price of the `international transactions of
     BPO/Data Processing Services rendered to the associated enterprise on
     the basis of order passed by the Transfer Pricing Officer (`TPO') under
     section 92CA(3) of the Act.
                                                 ITA No. 6980/Del./2017   2


3.   That the AO/TPO erred on facts and in law in computing the
operating profit margin of the appellant at 6.99% as against the correct
operating profit margin of 7.98%, allegedly holding that:

i.     The values reported in the Transfer Pricing Documentation for
computation of operating profit margin of the appellant do not reconcile
with the values reported in the audited financial statement for the
financial year 2012-13.

ii.   The foreign exchange gain/loss is to be considered as non-
operating for computing operating profit margin of the appellant and the
comparable companies.

4.    That the AO/TPO, erred on facts and in law in considering exchange
fluctuation income of Rs. 29,03,948 as non-operating item of income for
computing the operating profit margin of the appellant disregarding the
directions of the Dispute Resolution Panel (`DRP').

4.1 That the AO/TPO erred on facts and in law in not appreciating that
in terms of Rule 10B(1)(e) of the Income Tax Rules, 1963, while applying
TNM method, net profit earned by the appellant from transaction
undertaken with associated enterprise is required to be benchmarked.

5.    That the AO/TPO erred on facts and in law in rejecting comparable
companies on the basis of additional filter of export sales less than 75% of
the total income, without appreciating that selection of comparable
companies on the basis of such quantitative filters alone, defies the
purpose of the benchmarking analysis.

6.    That the TPO erred on facts and in law in considering the following
companies in the final set of comparable companies not appreciating that
there were not functionally comparable to the appellant for the purpose of
undertaking benchmarking analysis applying TNMM

      i.     Igate Solutions Ltd.
      ii.    Capgemini Business Services (India) Pvt. Ltd.
      iii.   e4e Healthcare

7.   That the AO/TPO erred on facts and in law in not allowing
appropriate risk adjustment to establish comparability on account of the
                                                        ITA No. 6980/Del./2017   3


      appellant being a low-risk-bearing captive service provider as opposed to
      the comparable companies who were independent ITES service provider

      8.     That on the facts and in the circumstances of the case and in law the
      AO/TPO erred in rejecting the contention of the appellant regarding risk
      adjustment, allegedly holding that the appellant failed to provide any
      evidence to demonstrate that whether any risk was actually undertaken
      by the comparable companies and such risks affected their operating
      profit margin.

      9.    That the AO/TPO erred on facts and in law in not allowing
      comparability adjustment on account of working capital employed by the
      appellant vis-a-vis comparable companies.

      10. That the Assessing Officer erred on facts and in law in levying
      interest under section 234B and section 234C of the Act."

2.    The brief facts of the case are that the assessee filed return of income on
26.11.2013 declaring income of Rs.2,61,11,546/-. The case was selected for
scrutiny and statutory notices were issued to the assessee. The assessee is in
the business of BPO/Data processing to its associate enterises. It is a company
incorporated on 19.03.2004, during the year was wholly owned 100%
subsidiary   of   M/s.   Omniglobe      International   LLC,     USA     (Associate
Enterprises/AE). The assessee also provided information technology enabled
services (ITeS) relating to phone activation and local number portability to
various clients for and on behalf of its parent company. The assessee company
was covered under the transfer pricing audit and the case was referred to
Transfer pricing Officer (TPO) on 05.08.2015 for determining the Arm's
Length Price (ALP) u/s. 92CA(3) in respect of international transactions
entered by the assessee with its AE. The ld. TPO included companies which
were rejected by the assessee in the transfer pricing documentation either on
account of functional dissimilarity or insufficient financial information and
                                                            ITA No. 6980/Del./2017   4


arrived at a set of the 13 comparable companies. Accordingly, he passed the
order on 13.10.2016 and determined the ALP for the provision of ITeS after
considering 13 companies and calculated average mean by OP/OC at 14.50%
as under :


Sr.No.   Company Name                             OP/OC (%)
1.       Accentia Technologies Ltd.               13.92
2.       Informed Technologies India Ltd.         3.28
3.       Microgenetics Systems Ltd.               16.25%
4.       Jindal Intelecom Ltd.                    (-) 2.99%
5.       Acropetal Technologies                   14.98%
6.       E4e Healthcare                           17.11%
7.       Capgemini Business Services (India) Pvt. 26.30%
         Ltd.
8.       New VC Servces Pvt. Ltd.                 20.07%
9.       Datamatics Global Services Ltd.          17.11%
10.      Caliber Point business solutions         2.19%
11.      R Systems International                  15.34%
12.      Igate Solutions                          23.61%
13.      Tech Mahindra                            21.33%
         Average                                  14.50%


After calculating the above Arm's length margin average at 14.50%, the ld.
AO/TPO made upward adjustment in relation to international transactions
related to ITeS as under :
      Particulars                                        Amount in Rs.
      Operating Cost                                     305,345,595
      Arm's Length Margin (%)                            14.50%
      Arm's Length Margin (Rs.)                          44,275,111
      Arm's Length Price                                 349,620,706
      Price charged by the assessee                      326,693,412
      International Transaction                          626,638,206
      3% of Price charged in international transaction   9,799,146
      Difference between ALP and Price charged by        22,927,294
      assessee
      Percentage of services provided to AEs to total    99.98
      revenue
      Proportionate Difference for which adjustment is   22,923,420
      required to be made
                                                       ITA No. 6980/Del./2017   5




Accordingly, the ld. AO/TPO made upward adjustment of Rs.2,29,23,420/-
being the ALP of international transactions for ITeS provided to its AE.
Further, the AO also observed that the assessee has credited in his profit and
loss account foreign exchange fluctuation gain of Rs.29,03,948/- which was
not considered as operating income by the AO while passing the draft
assessment order. During the course of determination of ALP by the TPO, it
was noticed that the assessee had entered into the international transaction of
provision of ITeS amounting to Rs.32,66,38,206/- with its AE. In the TP
documentation for the purpose of benchmarking, the assessee had applied
transactional net margin method as the most appropriate method considering
itself as the tested party and operating profit to operating cost ratio as the
most appropriate profit level indicator (PLI).


3.      For application of TNMM, the assessee considered the following two
comparable companies in the transfer pricing documentation with an average
operating profit margin of (-) 8.48% as under :

     S.No. Company Name                           OP/OC (%)
     1.    Allsec Technologies Limited            (-)4.19
     2.    Nucleus GIS & Ites Limited             (-)12.77
           Average                                (-)8.48%


While calculating operating profit margin by the ld. TPO, he applied the
following quantitative and qualitative filters for selection/rejection of
comparable companies :
        (i). Use of current year data
        (ii). Companies having sales less than 1 Cr. were rejected
        (iii). Companies having service income to total income ratio more than
               75% were selected.
                                                                  ITA No. 6980/Del./2017    6


          (iv). Companies having income from export sales at least 75% of the
                  total income were selected.
          (v). Companies having employee cost to total cost less than 25% were
                  rejected.
          (vi). Companies having RPT more than 25% of total income were
                  rejected.
          (vii). Companies that are affected by some peculiar economic
                  circumstances.
          (viii). Companies undertaking significantly different functions
                  compared to assessee.

Based on the aforesaid filters, the TPO in impugned order rejected all the
comparable companies considered by the assessee in the transfer pricing
documentation, for the reason submitted as under :


     S.No. Company Name                       Remarks of TPO
     1.    Allsec Technologies Limited        This company fails Export income
                                              more than 75%. Hence, not a suitable
                                              comparables.
     2.      Nucleus GIS & Ites Limited       This company fails Export income
                                              more than 75%. Hence, not a suitable
                                              comparables.


4.        On the basis of the TPO order, the AO passed the draft assessment order.
Against the draft assessment order, the assessee raised objection before the
ld. DRP. The ld. DRP after considering the submissions and explanations of the
assessee gave direction regarding the foreign exchange fluctuation as under :
          "As far as foreign exchange fluctuation is concerned, as per the TP study filed by the
          assessee, the assessee bears the foreign exchange risk since its functional currency
          is rupees and it gets payments in US$. The AE of the assessee does not bear foreign
          exchange risk. In view of this, the TPO is directed to treat foreign exchange
          fluctuation as operating in nature if it is linked to the operations of the assessee.
          Similar treatment (treating FE fluctuation as operating) should be given in the case
          of comparables also."


5.        Further, the turnover filter was also rejected by the DRP and risk
adjustment was also rejected by the DRP. Further, the assessee objected to
                                                         ITA No. 6980/Del./2017   7


five comparable companies out of 13 companies taken by the TPO. The ld. DRP
after making detailed discussion issued directions to the TPO vide order dated
25.08.2017. In pursuance to the directions of the ld. DRP, the AO worked out
the   average   margin   at   13.93%    and    finally    made     adjustment     of
Rs.2,11,82,587/- to the income of the assessee. Feeling aggrieved from the
final order of the Assessing Officer, the assessee is in appeal before the
Income-tax Appellate Tribunal.


6.    Ground No. 1 & 2 are general in nature and do not require any specific
adjudication.


7.    In respect of ground No. 3, 4 and 4.1, the AR of the assessee submitted
that the foreign exchange gain earned by the assessee is generated from the
services rendered to AE. It is an operating income. He further submitted that
the assessee has followed the TNMM as most appropriate method for
calculating the operating profit margin which has not been considered by the
AO/TPO. He also relied on many judgments placed on the paper book. Even
though the ld. DRP's specific directions were to consider the foreign exchange
gain as operating income, the AO has not considered the same in the final
assessment order. Therefore, the foreign exchange gain should be considered
for calculation of operating profit margin. The TPO has calculated operating
profit margin at 6.99% whereas it should be 7.98%.


8.    On the other hand, the ld. DR relied on the order of the lower authority.


9.    After hearing both the sides and perusing the entire material available
on record and case laws cited by the assessee, we find that the AO was not
                                                      ITA No. 6980/Del./2017   8


justified in not following the directions given by the ld. DRP. We, therefore,
remit this matter back to the AO/TPO to consider the foreign exchange gain as
operating income of the assessee while working out the operating profit
margin of the assessee, as directed by the ld. DRP. We further direct that the
AO/TPO should calculate operating profit margin as per Rule 10B(1)(e) of the
Income Tax Rules, 1963, if the assessee satisfies the conditions as per rules.
Needless to say, the assessee shall be given reasonable opportunity of being
heard. Accordingly, these grounds are allowed for statistical purposes.


10.    Ground No. 5 challenges the rejection of comparable companies on the
basis of additional filter of export sales less than 75% of the total income. In
this context, we do not find any justification to discard the conclusion reached
by the authorities below while considering this filter as appropriate filter for
comparability analysis in the facts of the present case. The ld. AR of the
assessee failed to rebut the finding of the ld. DRP that more than 86% of the
operating revenue is earned by assessee out of export sales. Therefore,
considering the quantum of export gross revenue of the assessee, the
authorities below have rightly applied this filter as an appropriate filter for
comparability analysis. Accordingly, this ground of assessee has no merit and
is liable to fail.







11.    Ground No.6 relates to selection of certain comparables, which
according to the assessee are not comparable companies, although the
assessee has challenged the selection of comparables, namely, Igate Solutions
Ltd., Capgemini Business Services (India) Pvt. Ltd. and e4e Healthcare
Business Services Ltd.
                                                                ITA No. 6980/Del./2017     9


12.    iGATE Solutions Ltd. : The ld. AR of the assessee objected to the
inclusion of this company in the list of comparables contending as under :
a) the company is not passing RPT filter
      It is submitted that the company is not passing on the filter of related party
      transaction in excess of 25%, applied by the TPO.

       The related party transaction works out to 36.09% of sales (refer page 338 of the
       paper book), as under



      Particulars                                            Amount      (   in
                                                             million)
      Revenue from operations
      I get technologies I NC.                               9,551
      I hate technologies I NC., Kannada                     1,236
      I get computer systems (UK) Ltd                        1,320
      Others                                                 235
      Total                                                  12,342
      Sales revenue                                          34,195
      RPT as % sales                                         36.09%


       The company, it is submitted, ought to be rejected from the final set of comparable
       companies, for this reason alone.

   a) Mergers/Accusations during the year
      During the year under consideration, IgateComputer Systems Ltd (formerly known
      as patni computer Systems Ltd.) merged with Igate Solutions Ltd. wide order dated
      10.05.2013 w.e.f. 01.04.2012.

       It is pertinent to note that the financial results of the company for the financial year
       2012 ­ 13 are affected on account of the merger undertaken during the year under
       consideration. The figures reported in the audited financial statements
       ofIgateSolutions Ltd for the year ending March, 2013 includes assets, liabilities,
       income, expenditure, profits and losses of IgateComputer Systems Ltd. for the
       period beginning from 01.04. 2012 to 31/03/2013. The fact that the financial
       results of the company for the financial year 2012 ­ 13 are affected due to the
       merger undertaken during the year are reproduced at page 20 ­ 21 of the annual
       report (page 321 ­ 322 of the paper book).

       It shall further be noted that the merging entity, i.e.IgateComputer Systems
       (formerly known as patni computer systems), is engaged in the business of
       providing IT and IT enabled services. The services rendered by the company under
       the IT segment includes, application development, application maintenance and
       support, verification and validation, enterprise application solutions, business
                                                           ITA No. 6980/Del./2017   10


   intelligence and data warehousing (refer page 8 of the annual report of patni
   computer systems). (annual report enclosed at pages 536 ­ 605 of the paper book).

   Accordingly, even if it is assumed that the company, iGATESolutions Ltd is engaged
   in providing IT enabled services, which is akin to the services rendered by the
   appellant, pursuant to the merger of Igate computer Systems Ltd (formerly known
   as patni computer systems), iGateSolutions Ltd ought not be considered as
   comparable to the appellant, as the merging entity is also engaged in providing IT
   services, which includes application development etc.
b) Functionally not comparable and segmental daughter not available

   The company is engaged in the business of providing information technology and IT
   Enabled services to the customers. At page 21 of the annual report, it is mentioned
   that the company is specialised IT and ITES is provider (page 321 of the paper
   book).

   From notes to Accounts: Segment Reporting, it is evident that the company is
   engaged in two business segments, namely, Information Technology and IT Enabled
   services.
   It is submitted that since the operating results of the IT enabled services segment is
   not available in the audited financial statement, therefore, the company cannot be
   considered as comparable to the appellant.
   Decisions relied upon
   Reliance is placed on the following decisions, wherein the Hon'ble Benches of the
   Tribunal have consistently taken a view to exclude companies having extra-ordinary
   event during the year under consideration:
   · Capital IQ Information Syatems (India) Pvt. Ltd. (ITA No. 1961/Hyd/2011)
        approved by Hon'ble High Court in ITA No. 305 of 2014 ­ CL 481-508(ITAT)/
        697-698 (HC)
   · Xchanging Technology Services India Pvt. Ltd. Vs. DCIT (ITA No.
        1897/Del/2014) ­ Approved Hon'ble High Court in ITA No. 813/2015- CL 699-
        700 (HC) /701-711 (ITAT)
   · Ameriprise India Pvt. Ltd. Vs. DCIT (ITA No. 7014/Del/2011) ­ Approved by
        Hon'ble High Court in ITA No. 461/2016- 759-786 (ITAT)
   · Toluna India Pvt. Ltd. Vs ACIT (ITA No. 5645/Del/2011)
   · Lear Automotive India P. Ltd. Vs ACIT (ITA No. 5612/Del/2011) and
   · Global Logic India Pvt. Ltd. Vs ACIT (ITA No. 5809/Del/2011)
   · Agilent Technologies ( International )Pvt. Ltd. Vs. ITO (ITA No. 1620/Del/2015,
        477 & 6420/DEL/2016
   · Transcend MT services Pvt. Ltd. Vs ACIT ( ITA No. 4048/Del/2013)
   · Vertex Customer Services India P.Ltd. vs. DCIT (ITA No. 1508/ Del/2015)
   · Exevo India Pvt. Ltd. vs DCIT (ITA No. 20/Del/2017)
   · Alcatel ­ Lucent India Ltd. vs Addl. CIT (ITA No. 1112 /Del/2017)
   · Ciena India Pvt. Ltd. vs DCIT (ITA No. 3324/Del/2013)
   · Equant Solutions India Pvt. Ltd. vs DCIT in ITANo.1202/Del/2015
   · NCS Pearson India Private Limited v ACIT (ITA No. 2556/Del/2014)
                                                                 ITA No. 6980/Del./2017   11


Reliance is also placed on the decision of Delhi Bench of Tribunal in the case of following
decisions, wherein, the Hon'ble Tribunal directed to exclude a company on account of non-
availability of segmental data:

             i.       Vodaphone India Services vs. DCIt( ITA No. 7140 & 7097 / Mum/2012 )
             ii.      Macquire Global Services (P.) Ltd. (ITA 6803/ Delhi/2013) ­ CL 509-533
      Hon'ble Tribunal in the case of appellant for the assessment year 2011 ­ 12[ITA No.
1003/Del/2016] excluded Accentia Technologies Ltd from the final set of comparable
companies, interalia, on account of extraordinary event of a merger/acquisitions and
nonavailability of segmental accounts. ­ CL 615 ­ 627.



Further, Igate global Solutions Ltd itself has been rejected as comparable, on account of
merger/acquisition and absence of segmental accounts, in the falling decisions;

Vertex customer services vs DCIT, Circle 28 (1), India Private Limited vs DCIT (ITA number
1508/Del/2015) ­ CL 712 ­ 740

Evalueserve SEZ ( Gurgaon ) P. Ltd. Vs ACIT (ITA No. 1467/Del/2017)
Ameriprise India Pvt. Ltd. vs DCIT (ITA No. 7014/Del/2014) ­ CL 759 ­ 786


      The assessee has further relied on the following decisions :
      (i).         ITA No. 461/2016, PCIT vs. Ameriprise India Pvt. Ltd. dated 19.10.2016
                   (Delhi H.C.)
      (ii).        ITA No. 124/2018 PCIT vs. M/s. Oracle (OFSS)BPO Services Pvt. Ltd. (Delhi
                   H.C.)


13.   On the other hand, the ld. DR relied on the order of lower authorities
and submitted that it is a good comparable company because it is engaged in
providing ITeS. It was also submitted that the amalgamation will not affect the
business of the company.


14.   In our opinion, It is clear from the annual report of this company that
related party transaction filter is more than 25% . The TPO has rejected has
the RPT filter more than 25 % itself (supra). It is further seen from the
directors' report which is on paper book page No. 307 that the company has
merged with Igate Computer Systems Ltd. The Directors' report is as under :
                                                             ITA No. 6980/Del./2017   12


      "iGATE computer systems Ltd. (iCSL) (formerly known as Patni Computer
      Systems Ltd) was merged with the company, pursuant to the approval of
      the scheme of arrangement by the shareholders of both companies and
      order dated May 10, 2013 of the Hon'ble High Court having judicature at
      Bombay, which became effective from May 27, 2013. The appointed date
      fixed under the scheme of arrangement was April 01, 2012. Accordingly,
      iCSL stands merged with the company as on the appointed date."

Due to extraordinary events occurred during the year, the financial result is
affected. Further, no segmental information is available on the annual report.
Moreover, iGATE has undergone restructuring by way of amalgamation, as
discussed above. iGATE is also having huge turnover of Rs.34,195 .
In view of both the counts as narrated above and after considering the case
laws cited by the assessee , we directed to the AO/TPO to exclude this
company not being a suitable comparable.


15.   Capgemini Business Services (India) Pvt. Ltd.: The learned AR of the
assessee relied on the written submissions for exclusion of this company from
the list of comparables, stating as under :
      a) Functionally not comparable
         it is submitted that as per the business information provided under head notes
         to accounts of the annual report (refer page 135 of the paper book), the company
         is a provider of financial shard services and governance., Risk and compliance
         services. Further under the head Revenue Recognition, the company states that
         it derives its revenue primarily from business process management services and
         assurance and compliance services.

         The company is also engaged in the business of providing supply chain,
         procurement, Technical Publication services in the financial year 2012 ­ 13. The
         company also provides operational control assessments, IT risk assessment, SAS
         70, Assurance andRisk management services to many around the globe.

         It is submitted that the aforesaid services are in the nature of KPO services and
         cannot be considered comparable to the captive services rendered by appellant
         being in the phone activation.
                                                             ITA No. 6980/Del./2017   13


          Reference in this regard is also made to Rule 10 TA of the income tax rules,
          which, the safe Harbour Rules, provides following services to be considered in
          the nature of KPO services:

             (g) " Knowledge process outsourcing services"means the following business
             process outsourcing services provided mainly with the assistance or use of
             information technology requiring application of knowledge and advanced
             analytical and technical skills, namely:-
             (i) geographic Information System;
             (ii) human resource services;
             (iii) engineering and design services;
             (iv) animation or content development and management:
             (v) business analytics;
             (vi) financial analytics; or
             (vii) market research,
          but does not include any research and allotment services whether or not in the
          nature of contract research and development services;

it is submitted that the nature of services provided by the company, viz, financial shared
services and governance, risk and compliance services, involve advance analytical and
technological skills, and are in the nature of KPO services.

Therefore, the company ought not be considered as comparable to the appellant on account
of functional dissimilarity.

It shall also be noted that as per the website of the company, the company is providing
services in the following areas:
        Transformation and innovation
        Digital Services
        Cloud Services
        Technology solutions
        Business Operations
        Cybersecurity & Risk
        all our services

Complete details of services provided under each head as shown above is enclosed at pages
609 to 614 of the paper book.

In fact, on the website of the company under head featured jobs, the company has sought
application of candidates having most advanced technology experiences, reproduced as
under :

      Portfolio Management ­ 14-16 years- Bangalore;
      Salesforce ­ 6 to 9 years Bangalore
      Mulesolf developer ­ 6 to 9 years ­ Chennai
      Salesforce developer ­ Hyderabad
      Magento Developer ­ 6 to 9 years ­ Bangalore & Mumbai
      Senior consultants
                                                              ITA No. 6980/Del./2017    14


From the aforesaid, it shall be noted that the company is not only engaged in providing
outsourcing services, but is also engaged in software development and related services and
provision of KPO services.

Needless to mention that in the absence of segmental results with regard to
BPO/outsourcing segment, the company cannot be considered as comparable to the
appellant with regard to its entity wide operation.

        b) Nonavailability of complete financial information
It is further submitted that thecompany is a whollyowned subsidiary of Capgemini S.A.
France and the entire group operates through its subsidiary across 40 countries.

However, the related party transition detail is not available in the annual report being
available in the public domain and therefore, the basis filters applied by the TPO cannot be
verified.

In view of the aforesaid, it is submitted that the company cannot be considered as an
appropriate comparable for the purpose of applying TNMM."

       Hon'ble Tribunal in the case of appellant for the assessment year 2012 ­ 13 in ITA
       No. 6014/Del/2016, excluded Informed Technologies India Ltd from the final set of
       comparable companies, being engaged in provision of KPO           services such as
       financial research services, data management services to the financial content
       industry. ­ CL 628 ­ 648.

       A company engaged in provision of KPO services cannot be regarded as an
       appropriate comparable for the purpose of benchmarking the international
       transition of provision of BPO services[Rampgreen Solutions Pvt. Ltd vs. CIT (377
       ITR 533)]. ­ CL 670 ­ 696

       Reliance, in this regard, is praised on the following decisions, wherein, the Hon'ble
       Tribunal directed to exclude a company on account of non-availability of segmental
       data:
          iii.    Vodaphone India Services vs. DCIT( ITA No. 7140 & 7097 / Mum/2012 )
          iv.     Macquarie Global Services (P.) Ltd. (ITA 6803/ Delhi/2013) ­ CL 509-535


16.    The ld. DR, on the other hand, relied on the orders of authorities below.


17.    In our opinion, it is clear from the business profile of this company that
the company is engaged in providing BPO services in the nature of business
process management services and assurance and compliance services. The
company is also providing business process outsourcing services in finance
                                                            ITA No. 6980/Del./2017   15


and accounting in India. The company also offers financial share services and
sharbanes Oxley compliance services to the industries in the domain of
customer products, retail and distribution, financial services, life science and
healthcare, manufacturing, media and entertainment and utilities.                    The
arguments of the ld. DR has no force in view of the fact that the AO /TPO
himself has admitted in his order that the assessee was in the business of
BPO/data processing and in ITeS relating to phone activation and local
number portability to various clients for and on behalf of its parent company.
Nowhere in these orders, the authorities have observed that assessee was
providing high-end knowledge based services requiring high skill. In our
considered opinion, the above comparable company is engaged in BPO/KPO.
The KPO is nothing but extended version of BPO. The contention of the
assessee is also that the assessee is engaged in BPO/KPO services, but no
segmental information is available, which is necessary to treat this company
as appropriate comparable. We, therefore, direct the AO/TPO to analyse the
comparability test of this company on the basis of segmental information, if he
possesses the same.


18.   E4e Healthcare: The ld. AR for exclusion of this company from the list
of comparables has stated as under :
   a) Functionally not comparable and segmental data not available
      As per page 54 (227 of the paper book), besides providing IT enabled services, the
      company is also engaged in the business of rendering software development
      services.

      However, segmental data with respect to IT enabled services segment is not
      available in the audited financial statement of the company.

      Further, as per page 56 (page 229 of the paper book), the company derives its
      revenue primarily from Revenue Cycle management of U.S. Based the Healthcare
      client. Revenue is derived from billing, coding and claim process services.
                                                         ITA No. 6980/Del./2017   16


A further scrutiny of the nature of services provided by the company from the
website of the company revealed that the company is providing host of services and
end ­ to - end solutions to the healthcare industry. A few snapshot of the website of
company is as under;

                      Healthcare Business Solutions
                      Enhance your margins
       Our 23 - year experience has taught us that there is no magic potion are silver
       bullet for improving financial performance. It can only be achieved by
       leveraging best practices, tested process, and innovative technology. Our
       approach historically addresses Revenue Cycle Management ­ from the
       moment a patient enters the system to the final dollar being collected or paid ­
       all this, while delivering better outcomes in quality, turnaround times, and
       productivity.

The various services and solutions provided by the company, as demonstrated on
the website is reproduced hereunder
      Provider solutions
      Medical Billing Companies
      Integrated Practice and RCM
      Coding and Compliance
      Hospital Services
      Hospital Coding
      Payer Solutions
      Claims Management and Admin
      Cost Avoidance and Audit
      Medical Record Audit
      Contact Centre Solutions
      Technology Solutions
      Payer Platforms
      Computer ­ Assisted Coding
      Workflow Tools
      Value ­ Added Services
      Case Studies
      Healthcare & Life Science Analytics

Detailed services as extracted from the website of the company is enclosed at pages
606 to 609 of the paper book.

From the aforesaid, it shall be noted that for the revenue cycle management services
provided to its health clients, the company is not only providing just billing, coding
and claim processing services, but also providing audit services as well as
technology solutions such as payer platform, workflow tools etc. It is submitted that
the diverse services provided by the company is in the nature of IT services and KPO
services apart from IT enabled services.
                                                            ITA No. 6980/Del./2017   17


      Hon'ble Tribunal in the case of appellant for the assessment year 2011 ­ 12[ITA No.
      1003/Del/2016] excluded Accetia Technologies Ltd. form the final set of
      comparable companies, inter alia, on the basis that the company provides services
      in healthcare division and also engaged in the business of providing KPO services.
      The company was also excluded on account of non-availability of segmental
      accounts.

      Following the decision for assessment year 2011 ­ 12 the Hon'blelTirunal in the
      appeal for assessment year 2012 ­ 13 in ITA No. 6014/Del/ 2016, excluded
      Acropetal Technologies Ltd and BNR Udyog Ltd from the final set of comparable
      companies, being engaged in provision of KPO services in healthcare segment

      A company engaged in provision of KPO services cannot be regarded as an
      appropriate comparable for the purpose of benchmarking the international
      transition of provision of BPO services[Rampgreen Solutions Pvt. Ltd vs. CIT (377
      ITR 533)].

      The company has itself been rejected as comparable is to a ITES enabled services
      provider in the following cases:

      HOV Services Ltd. Vs. JCIT (2016) 73 Taxmann.com 311 ­ CL 787 ­ 818
      Schlumberger India Technology Centre Pvt. Ltd. Vs. DCIT (ITA No. 640/Pn/2014) ­
      CL 741­ 758


19.   On the other hand, the ld. DR relied on the orders of the lower
authorities and submitted that the assessee has produced the print out of
business profile of this company on 20.01.2018, which at PB-606 to 608,
which is not reliable and may differ from actual business activities of the
company. The case of assessee is related to A.Y. 2013-14.


20.   In our opinion, the ld. DRP has given direction that if this company
passes the employee cost filter, it can be retained as comparable. We further
observe from the paper book of assessee that in assessee's own case for A.Y.
2011-12, this company was selected as comparable on which no objection was
raised by the assessee upto the stage of Tribunal. Similarly, in the case of
assessee for A.Y. 2012-13, the DRP had mentioned that assessee has no
objection on inclusion of this company. However, keeping in view the
                                                        ITA No. 6980/Del./2017   18


objection of assessee in the submissions made before the Tribunal, the ITAT
remitted this matter back to the file of DRP for re-deciding the same after
affording reasonable opportunity of hearing to the assessee. No further
information pursuant to the remand proceedings, is furnished by the assessee
before us. It is notable that before the ld. DRP, the assessee raised objection on
this company only on account of non-comparability of employees cost and no
objection was raised either on functional test. The objection regarding non-
availability of annual report was not raised by the assessee before the TPO.
The ld. DRP was also of the view that when the assessee challenged the
employees cost filter having not been passed, it leads to say that the assessee
was having annual accounts of the said company. Keeping in view these facts,
the ld. DRP remitted it to the AO to compare this company on the basis of
employees cost filter. In pursuance to this, the AO/TPO after going through
the annual report of this company found that this company passes the
employees cost filter and therefore, in our considered opinion, has rightly
included this company as an appropriate comparable. In presence of above
facts, the objections of the assessee on functional dissimilarity or non-
availability of segmental data are not found acceptable at all. We, therefore,
conclude that the ld. Authorities below have rightly included this company as
an appropriate comparable in the instant case.


21.   In respect of ground No. 7 & 8, the assessee has raised grounds relating
to risk adjustment not granted by the AO/TPO. The AR of the assessee
reiterated the submissions made before the lower authorities and submitted
that the assessee should be allowed risk adjustment because the assessee is
dealing only with its holding company. On the other hand, the ld. DR relied on
                                                                   ITA No. 6980/Del./2017    19


the order of the lower authorities and he submitted that the authorities below
have discussed this issue in detail.


22.    After going through the orders of the authorities below and submissions
of the assessee, we observe that there is no infirmity in the orders of the lower
authorities. The findings reached by the authorities below are as under :


RISK ADJUSTMENT
 The assessee has argued that it is working in a risk mitigated environment and does not
take market risk, credit risk, pricing risk, etc. On single customer risk it is claimed that it is
getting continuous business from the AE and there is no such risk. As regards political and
country risk, it is stated that the same are applicable to ail and is not peculiar to assessee
alone. The assessee has not provided any quantification of the different kinds of tasks
assumed by the comparables and claimed not available in the case of assessee, Thus, the
computation of risk adjustment by the assessee is vague and without any basis as the
assessee has not furnished any factual input correlating its functioning, die functioning of
the service sector and the functioning of die comparable companies. From the above, it is
observed that the assessee has not been able to assign any evident and acceptable value to
the adjustment claimed on account of Zero risk born by the assessee. The assessee has also
not furnished the risk profiles of the comparables, even-while the assessee has objected the
action of this office for not allowing any adjustment for difference in risk profile of the
assessee and that of comparables. The primary' argument of the assessee is that it was
remunerated on cost plus basis, i.e, the entire cost incurred by the assessee is reimbursed
by its AE along with a certain markup and, accordingly, is was working in a risk free
environment. 1'he assessee further contended that the profits are directly linked with the
risk profile , t e., more is the risk more should be the profit and, therefore, since the
assessee was not carrying any risk, it should have been allowed adjustment for assuming
lower risk as compared to the compare' vs. This Panel has carefully considered the
arguments of the assessee. The adjustment for function - : differences, if any. can be made
only if those differences can be ascertained accurately and then impact on the margins can
be assessed with reasonable accuracy. In this case, no information is available about the
risk profile of the comparables, i.e. how much was the risk assumed in respect of functions
carried out by them, what was their business model, i.e., either cost plus or full time
equivalent (FIE) or lump-sum. consideration. In the absence of reliable information about
the risk profile of the comparables, it is impossible to quantify the adjustment for
difference in the risk profile. Moreover, the assessee also bears single customer risk which
is a significant risk. In stock market also, companies with diversified customer base
commands better valuations as compared to the companies having single customer or
narrower customer base.

After careful consideration of the matter this office is of the view that risk adjustment as a
general rule cannot be allowed unless it is clearly shown that the comparable.- had actually
                                                                ITA No. 6980/Del./2017    20


undertaken such risk and how the same materially affected their margins. The revised
OECD guidelines of 2010 has also stated in Para 3.54 as under:

        "Ensuring the needed level of transparency of comparability adjustments nun
        depend upon the availability of an explanation of any adjustment performed, the
        reasons for the adjustments being considered appropriate how they were calculated,
        how they changed the results for each comparable and how the adjustment
        improves comparability. Issues regarding documentation of comparability
        adjustments tire discussed in Chapter V ."






 8.2.    Prom the above guidelines, it can be seen that unless it is shown that how the
        risk adjustment would change the result of each comparable and how the same
        would improve the comparability and unless adequate reasons are given for such
        adjustment, no adjustment can be allowed to the assessee. In the present case
        except pointing out various risks the assessee has not shown with evidence as to
        whether each of the risk was actually undertaken by the comparables or not and
        if so how these risks affected each of them and whether such adjustment would
        improve the comparability. It may also be mentioned that: it is incorrect to say
        that the assessee is working virtually in a risk free environment. The assessee too
        bears several risks like technology risk, foreign exchange risk, manpower risk,
        single customer risks, etc. The various risks to which assessee is exposed are
        being discussed below:-

 No.    Risk to              The discussion on various risks as per the matrix as
        assessee             disclosed in transfer pricing report and also remarks of
                             this office on the same
  1.     Market risk          Disclosed in transfer pricing report, The assessee's claim that
                              it does not bear market risk as it renders services- exclusively
                              to its AE is not acceptable. In fact, the assessee bears a much
                              bigger market risk viz. single customer risk, j As the assessee
                              is wholly dependent on its AE, its entire existence is
                              dependent on it. If the AE runs out of business or if AC -
                              business gets reduced substantially, the assessees business
                              will also get adversely affected The assessee being a captive
                              service provider cannot even look, for other 1 customers.
                              Thu?, in fact the assesses runs a greater risk than an average
                              independent entity that can always look for other customers
                              or other markets
  2.     Service liability    Disclosed in transfer pricing report. The assesses argues that
                             independent i comparables bear lull responsibility for delivery
                             of final services to clients and hence exposed to service failures
                             risk whereas the assessee is not exposed to this risk as it dries
                             not have any contractual liability for losses or damages' for
                             service failures and the cost of rework (if any) would be
                             recoverable from AE on a cost plus basis. It is naive to argue
                             that the assesses is not responsible for quality of service and
                                                             ITA No. 6980/Del./2017   21


                         thus does not bear risk for delivery1 of services.
                         Further, it is the duty of the independent enterprise to rectify
                         such error at an additional cost, which in fact, reduces the
                         profitability as it cannot get more than the prevailing rate in
                         the market for the services rendered. The reworks unless
                         exceptional are a part of running business and are factored in
                         stated profits.
3     Price Risk         Not disclosed In transfer pricing report but actually borne by
                         assesses.
                                                        :

4,    Capacity          Disclosed in transfer pricing, report. The assessee states that as
      utilization risk  it is compensated even on' the idle capacity, it does not bear
                        this risk. However, most independent companies are charging
                        almost similar man-hour rates. Further, it is not the case of
                        assessee that independent companies are charging at a
                        premium rate to account for under utilization of capacity.
                        Further, as the operating margin is computed after considering
                        the complete employee cost which includes the salary for the
                        period of under utilization of employees, the effect of this risk
                        is already taken care of while computing the operating margin.
                        It has also not been shown that margins change because of
                        under utilization.
5.    Foreign           Disclosed in transfer pricing report. However, it has been
      exchange risk     considered a nonoperating item both for assesses and
                        comparable companies. Besides, hedging costs incurred by
                        comparable companies are already part of their P&L and have
                        already reduced their profits.
6.    Credit          & Disclosed in transfer pricing report. It is not shown that the AE
      collection risk   pays the money in advance. If not so. assessee also has credit
                        risk as there is no guarantee that the AE shall always be in a
                        position to pay the assesses. In any. case, the risk on account of
                        collection is very minimal and it gets nullified at net level due
                        to the fact that the margin of the comparable companies is
                        computed only after deducting the bad debts/ provision for
                        bad debts as operating expenses.
7.    Government & Not disclosed in transfer pricing report but actually borne by
      institutional     assesses.
8.    Operational risk Not disclosed in transfer pricing report but actually borne by
                        assesses.
9.    Infrastructure    Not disclosed in transfer pricing report but actually borne by
      failure risk      assessee.
10.   Manpower risk     Disclosed in transfer pricing report but actually borne by
                        assesses, It is argued that the high attrition rate resulting in
                        higher training costs, idle time etc will have an impact on the
                        pricing of comparables. However, it is an ongoing phenomenon
                        in any running company and the costs on account of the same
                                                                  ITA No. 6980/Del./2017     22


                             are already factored in the P&L of comparables. As regards loss
                             of valuable personnel and related human intangible, even the
                             assesses is exposed to this risk.
  11.    Security risk       Not disclosed m transfer pricing report but actually home by
                             assesses.
  12.    Environmental       Not disclosed in transfer pricing report but actually borne by
         risk                assessee.
  13.    Technology Risk      Comparable companies as well .as the assesses tire exposed to
                              similar type of technological obsolescence or risk, further,
                              technological changes are an ongoing phenomenon and place
                              an additional cost burden which pull down the profitability of
                              the comparable companies as well. It may be more relevant
                              for companies which have substantial assets and run the risk
                              of their products getting obsolete This risk is not very
                              relevant for service industry.

 8.3.   Judicial decisions: In various judicial pronouncements the risk adjustment has not
        been allowed by the ITATs. Some of these decisions are discussed below:
 (a) Vedaris technology (2010-TII-10-ITAT-DEL-TP: No risk adjustment to be allowed
 even on ad hoc basis

 (b) M/s Marubeni India Private Ltd. t20n-TII-36riTAT~DF.L-TP) in which it was held
 that as the assessee failed to bring any evidence on record to show that-there was any
 difference in risk profiles of comparable companies and since the assesses failed id file
 the details exhibiting risk borne by comparables, no risk adjustment can be given, even
 on ad hoc basis.

 M/S ADP Private Ltd. (2011-TII-44-ITAT-HYD-TP wherein the IT AT held that there is no
 thumb rule for allowance of risk adjustment
 (d) M/s Symantec Software Solutions Private Ltd, (2011-TII-60-ITAT-MUM-TP): The
 ITAT held that;-

 i. Until and unless it is shown that the difference in function and risk results in deflation
 or inflation of financial results of the comparables, it is not a general rule to grant it as a
 standard adjustment.

 ii. The assessee could not show how such difference in risk and functions affected the
results of the- comparables.

(e). M/S ST Micro Electronics (2011-TII-63-ITAT-DEL-TP): The assessee's claim that is
was a risk tree captive service provider and hence cannot be compared with comparables
who were lull entrepreneurs was not accepted by the ITAT.

(f). M/s. Exxon Mobile Company India Pvt. Ltd. (201 l-TII 68-ITAT-MUM-TP): The ITAT
held that since working capital adjustment has been given and the assessee has not
worked out the risk adjustment, no adjustment can be granted on this account
                                                               ITA No. 6980/Del./2017   23



(g). M/s Deloitte Consulting India P Ltd: ITA No. 1082/Hyd/2010, ITAT Hyderabad dated
22.7.2011: In this decision the ITAT held as under;

       ''The next ground is with regard to the issue that the TPO/CIT (A) not allowing any
       adjustment towards valuable intangibles owned by and in respect of
       entrepreneurial risk borne by the comparables. We find that there are several
       factors such as market risks environmental risk, entrepreneurial risk and functional
       risk etc.. which affect this muter and which ultimately, affect the results of the
       company. All the aforesaid factors make it impracticable to any authority to find out
       exact duplicate company of the assessee as comparable. Some variation bound to
       exist. We find that the TPO had made efforts to identify the comparables whose
       functions are similar to the assessee company by applying filter quantitatively and
       qualitatively to eliminate, the differences between the assesses companies with that
       of comparable companies neutralize the aforesaid risk factors. The argument of the
       learned counsel for the assessee in the written submissions as well as submissions
       made before us were all in the background of showing the assessee company its low
       end performer. We do not find force in the contention of the-learned counsel for the
       assessee that the assessee is a risk free service provider and sufficient adjustment
       needs to be allowed to compare with the other comparable companies. The learned
       counsel for the assessee placed reliance on several decisions in support of his case
       that there should be some adjustment for risk to be given However, we find that the
       first appellate authority utter going through the agreement, entered by the assessee
       company with the AE. observed that the assessee company is an independent
       contracting entity and shall be solely responsible for determining the manner,
       means and methods by which ii performs its obligation under the said contract as
       per Articles, the assessee company has undertaken the warranty that all its work
       and documentation to be delivered to the associate enterprise shall be free of error
       In a nutshell, the assessee company was carrying several risks while undertaking
       various works services far as associate enterprise In view of this mater after
       considering the detailed reasoning given by the CIT (A) TPO in their orders, in our
       considered opinion, it cannot be said that the assessee company was operating in a
       risk free environment and accordingly the assessee company is not entitled to any
       adjustment towards risks borne by various comparable companies. Therefore, we
       confirm their orders on this issue. Hence, the ground raised by the assesses on this
       issue is rejected. "

(h).   Reliance on the judgment of M/s Inteilinet Technologies India Pvt. Ltd Vs ITO (ITA
       No. 1237 (Bang)/2010) is not of much help as in that case ITAT has not accepted the
       assessee's contention of risk adjustment of 5.5%, The ITAT has only set aside the
       matter to TPO to consider various contention of the assessee and decide the
       percentage of risk adjustment in accordance with law. However, if the methodology
       given by the-assessee in its contention does not lead to reasonably accurate
       adjustment, the law is not in favour of granting an adjustment. Hence, the judgment
       cannot said to be to laying down that a risk adjustment should be allowed even if it
       does not result in reasonable accurate adjustment.
                                                                ITA No. 6980/Del./2017   24


8.6.    Hence, it can be seen from the analysis of various judgments that the issue of grant
        of risk adjustment is not yet settled. In some decisions, courts have not allowed any
        risk adjustment, in some decisions, courts have principally agreed that there are
        differences between risk profile of the assessee and comparables and so there
        should be risk adjustment. However, the courts have not yet ruled on the issue
        whether any particular method results in reasonably accurate adjustment or not.
        Further, whether the assessee has a significantly different risk profile from that of
        comparables, therefore warranting a risk adjustment is a question of fact and has to
        be decided on the facts of the case.

8.7.    It is not sufficient to merely spell out risks. It has to be shown which risk was
        actually undertaken by the comparables and to what extent it affected the
        profitability. The assessee has not done so. Adjustment can be allowed only if it is
        demonstrated that is leading to better comparability and only when a credible
        methodology is adopted for calculating a reasonably accurate adjustment.

8.8.    Since, the methodology is nor well established and-requires making several
        assumptions, the risk adjustment calculated as per the methodology will not lead to
        reasonably accurate adjustment as required as per the Income Tax Act and Rules.
        Therefore, it will not be possible to give risk adjustment under the Indian law.

8.9.    The discussion on the risk adjustment is summarized as under:

   a.   As discussed above, the assessee has also undertaken several risks. Therefore, it is
        not correct to say that it is a risk mitigated entity.

   b.    The assessee is totally dependent on the AE tor business. Thus the assessee takes
        the risks associated with heavy dependence on a single customer. In common
        business parlance it is known as "single customer risk'.

   c.    The compensation model with the AE does not guarantee volume of business nor
        tire period. The agreement can be terminated by any party at any time after giving a
        stipulated period notice. Thus the assessee is not free from the risk of losing
        business entirely or losing volume of business.

   d.    The assessee is not compensated any amount for termination of agreement even if
        it is terminated without any cause. No independent enterprise would like to agree
        for a termination clause without compensation if it is terminated without any cause.
                                                                   ITA No. 6980/Del./2017     25


   e.    The independent entrepreneur has to incur expenditure on marketing, etc. which is
        debited to the profit and loss account. But, it is always not necessary that these risks
        reflected in the marketing, sales promotion expenses will automatically be
        compensated by increase in sales or higher margins For example, increased
        marketing efforts in some segments of market may not yield results for a company
        and thereby there may be a loss on this marketing effort which may bring down the
        overall profitability rather than increase the profitability. Thus if undertaking the
        market risk etc. helps in earning any extra margin, the benefit is more than set off
        by the corresponding expenditure. The same applies to credit risk, service- liability,
        technology risk etc.

   f.    If is incomxt to say that higher the risk, the higher is the margin though it is true
        that one expects higher margin when one undertakes higher risk. Titus realization
        of risk is different from expected return based on risk undertaken. Finally selected
        comparables have almost similar risk' as all are independent entrepreneurs but
        their margins vary substantially.

   g.    Different: comparables can have different risk profiles and different profit margins.
        The proviso to Sec. 92C{2) of the Act provides for adopting arithmetical mean of the
        different prices. This provision neutralizes the effect of difference in the risk profile,
        if any between the tax payer and the comparables as realized risk may pull down
        the profitability below the risk tree return.

   h. It is not sufficient to merely spell out .risks, .It has to be shown which risk was
      actually undertaken by the comparables and to what extent it affected the
      profitability. Adjustment can he allowed only if it is demonstrated that is leading to
      better comparability and only when a credible methodology is adopted for
      calculating a reasonably accurate adjustment. The methodology used by the assessee
      does not have any application in the area of transfer pricing.

        i. In the various decisions of the ITATs as referred to above no risk adjustment has
        been allowed in such cases in absence of any credible methodology to gram risk
        adjustment.

        In view of the above discussion it is held that no risk adjustment is to be given to the
        assessee.

8.10. Further the assessee has quantified the risk adjustment based on the difference
      between bank rate and PLR. It is mentioned here that reference to PLR and bank
      rates in the context of transfer pricing is not pertinent. Though the honorable ITAT
      was persuaded in the case of Philips that bank rates and PLR are in some way
      connected with the under lying risk of lending; in fact it is not. so. Loosely speaking
      bank rate is the rate at which the central bank (RBI in India) advances credit to
      other banks. The bank rate also refers to the rate of interest charges on interbank
      short term borrowings (call money). However it is in no way connected with the
      perceived under lying risks. Before setting the base fate system, banks used another
      rate system called Prime Lending Rate (PLR) to set their lending rates. It was
                                                                ITA No. 6980/Del./2017    26


        noticed by the RBI that banks used to manipulate this PLR to lower level to offer
        discounted lending rates for the borrowers. It may cause the loss for the banks If
        they offer loan with much cheaper price. The real intention of the RBI is to make the
        banking system much stronger after the global financial crisis. The banks meet huge
        loss because of the default loans. The main reason is, when banks offer loans with
        cheaper price to lure the customers, most of the customers without adequate
        financial support to get the loans. Base rate system provides more transparency on
        selling the rates. Each bank uses same criteria to set their base rates. Base rate
        system is arrived at taking into the account, the cost of deposits and cost of keeping
        aside cash to meet CLR and SLR, It is convenient for the banks to adjust the lending
        rates after the changes on policy rates by the RBI.

8.11. In the following categories of loans PLR or base rate is not applicable:
 · Agricultural Loans
 · Loans given to own employees
* Loans against deposit
* Export Credit
8.12. As per RBI guidelines Base Rate shall include all those elements of the lending rates
      that are common across all categories of borrowers. While each bank may decide its
      own Base Rate, some of the criteria that could go into the determination of the Base
      Rate are: (i) cost of deposits; (ii) adjustment for the negative carry in respect of CRR
      and SLR; (Hi) unallowable overhead cost for banks such as aggregate employee
      compensation relating to administrative functions in corporate office, directors'
      and auditors' lees, legal and premises expenses, depreciation, cost of printing and
      stationery, expenses incurred on communication and advertising, IT spending, and
      cost incurred towards deposit insurance; and (iv) profit margin. It is generally
      known fact that the RBI uses interest rates as a measure of monetary policy to
      control liquidity in the market or as an anti inflationary measure.

8.13.  The RBI policy announcement makes it very clear that PLR/Base Rate and bank
      rates are not the functions of risk adjustments but are measures used by the RBI as
      tools of monetary policy to control inflation; to regulate excess cash flow in the
      market and to release/suck out liquidity from the market. It is naive to postulate
      that the difference between the bank rate and the PLR/Base rate represent the
      underlying risk of lending,. The 29rystall's argument is therefore not acceptable.
8.14. Further, in the assessee own ease for AY 2012-13, the assessee has filed an appeal
      before DRP against the order u/s 92CA(3) passed by the TPO on this issue.
      However, the DRP vide its order dated 14.09.2016 has dismissed the assessee's
      ground with the remarks "It is also worth adding that it is not sufficient to merely
      spell out risks, it has to be shown which risk was actually undertaken by the
      comparables and to what extent it affected the profitability........... Since, the
      methodology is not well established and requires making several assumptions, the
      risk adjustment calculated as per the methodology will not lead to reasonably
      accurate adjustment as required as per the Income Tax Act and Rules. Therefore, it
      will not be possible to give risk adjustment under the India law."
                                                             ITA No. 6980/Del./2017    27


      "DRP Directions:
      Objections ix and x are related to risk analysis and risk adjustments hence are being
      adjudicated together. Risk adjustment as a general rule cannot be allowed unless it
      is demonstrated that the comparables had actually undertaken such risk and how
      the same materially affected their margins. Unless it is shown that how the risk
      adjustment would change the result of each comparable and how the same would
      improve the comparability and unless adequate reasons are given for such
      adjustment, no adjustment can be allowed to the taxpayer. In the present case, the
      taxpayer has not shown with evidence as to whether each of the risk was actually
      undertaken or not by the comparables and if so, how these risks affected each of
      them and whether such adjustment would improve the comparability. Probability of
      risk and certainty of risk are two different aspects and cannot be equated for the
      purpose of adjustment. All this requires robust and reliable data, both for the
      assessee and the comparables in the absence of which risk adjustment cannot be
      considered for enhancing comparability. Thus, the objection is dismissed."


23.   In the result, these grounds of appeal are rejected.


24.   Ground No.9, challenges the working capital adjustment of assessee vis-
a-vis comparable companies. After going through the order of the lower
authorities, this issue has not been dealt and the assessee has also not raised
this issue before the DRP, but raised before us. Therefore, this ground is not
accepted.


25.   Ground No. 10 regarding charging of interest 234B and 234C is
consequential in nature. The AO is directed to give its consequential effect.


26.   In the result, the appeal of the assessee is partly allowed.
      Order pronounced in the open court on 15th October, 2018.
              Sd/-                                                Sd/-
       (Bhavnesh Saini)                                     (L.P. Sahu)
      Judicial member                                  Accountant Member

Dated: 15th October, 2018
*aks*