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Pr. Commissioner Of Income Tax Vs. B. C. Management Services Pvt. Ltd.
December, 07th 2017
$~28 & 57

%                                Judgment delivered on: 28.11.2017
+       ITA 1064/2017 & CM No. 43177/2017
PR. COMMISSIONER OF INCOME TAX                            ..... Appellant

B. C. MANAGEMENT SERVICES PVT. LTD.                    ..... Respondent

+       ITA 1083/2017 & CM No. 43280/2017
PR. COMMISSIONER OF INCOME TAX                            ..... Appellant

B. C. MANAGEMENT SERVICES PVT. LTD.                     ..... Respondent

Advocates who appeared in this case:

For the Appellant(s)     :       Mr. Zoheb Hossain, Sr. Standing Counsel
For the Respondent(s)    :       None.



1.      The Revenue is aggrieved by the order of the ITAT which in
AY 2011-12, accepted the assessee's appeals. The questions of law
urged are as follows:-

ITA 1064 &1083/2017                                               Page 1 of 6
        "1.     Whether the exclusion of four comparables i.e. e-Clerx
                Pvt. Ltd., M/s ICRA Techno Analytics Ltd., M/s TCS E-
                Serve Ltd. and M/s Accentia Technologies Pvt. Ltd., are
                sustainable and not erroneous?"

        2.      Whether the findings of the ITAT with respect to foreign
                exchange gain and the manner of its treatment as part of
                Operating Income for ALP determination, is correct and
                is justified?

        3.      Whether the exclusion of the Transfer Pricing adjustment
                made by the TPO, added notional interest on delay in
                receipt of payment of Associated Enterprises (AE) was
2.      The Assessee company was incorporated on 12.05.2010, which
provides IT enabled services i.e. Application and infrastructure
development and testing, system and performance operations
management and support etc. to its associated enterprises.

3.      The assessee was required to file Transfer Pricing Report along
with its income tax returns on 28.11.2011 declaring the total income
of Rs. 2,98,06,000/-.

4.      The matter was referred to Transfer Pricing Officer (TPO) who
made certain adjustments ­ to the tune of Rs. 2,89,52,326/- after
taking into account the margins earned by the comparable
industry/assessee, the detail and data of which was available. The
assessee preferred its objections to the Dispute Resolutions Panel
(DRP); which granted partial relief in the sense of direction to delete
the comparable i.e. Accentia was made. The AO then completed the

ITA 1064 &1083/2017                                             Page 2 of 6
assessment under Section 143(3). The Assessee preferred appeal to
the ITAT.

5.      The ITAT granted relief with respect to the assessee's appeals
by directing the exclusion of all four comparables and rejected the
Revenue's appeals. Likewise, the additions made by the AO on the
ground of foreign exchange gains, as well as additions of notional
interest; were deleted.

6.      This Court notes that so far as the second and third questions
i.e. foreign exchange and notional interest are concerned, they are no
longer res integra in terms of the order made by the DB of this Court
in Principal Commissioner of Income Tax Vs. Cashedge India Pvt.
Ltd., ITA 279/2016 decided on 04.05.2016.

7.      In Principal Commissioner of Income Tax Vs. Ameriprise India
Private Limited (ITA 206/2016) decided on 23.03.2016, this Court
had held that foreign exchange gains earned by the assessee which is
in relation to trading items and emanating from international
transactions, direct value derived from it cannot be treated as Non-
Operating losses and gains.

8.      This Court notices that Revenue seeks to rely on the Safe
Harbour Rules which were notified by the Revenue authority and
came into force in 2013. In these circumstances, given that the present
assessment period covers AY 2011-12, the treatment cannot be in
accordance with those rules as held in `Principal Commissioner of

ITA 1064 &1083/2017                                            Page 3 of 6
Income Tax Vs. M/s Cashedge India Pvt. Ltd., ITA 279/2016 ', decided
on 04.05.2016. Consequently, no question of law arises.

9.      With respect to the treatment of notional interest by the
TPO/AO, the Court is of the opinion that no question of law arises. In
an identical situation, in Principal Commissioner of Income Tax Vs.
Bechtel India Pvt. Ltd. ITA 379/2016, decided on 21.07.2016, the
Court had held that such notional income on account of delayed
payment made by the AO cannot be treated as part of the income and
made the subject matter of the adjustments. The question no. 2 and 3
therefore does not arise for consideration.

10.     So far as question no. 1 with respect to exclusion of four
comparables is concerned, we notice that E-clerx was excluded on
two grounds i.e. no segmental data was available, and it was
functionally different as it was providing high end/BPO services.

11.     This Court further notes that E-clerx is to provide financial
services such as consultancy business solution and testing.

12.     The Assessee provides IT abled services in infrastructure
development and testing, system and performance operations
management and support etc. The ITAT excluded E-clerx as
comparable after noticing that it provided high value financial
services relating to consultancy business and solution testing besides
the web content management merchandising execution, web analytics,
etc. This functional dissimilarity, and absence of segmental data led

ITA 1064 &1083/2017                                            Page 4 of 6
to its exclusion as a comparable. Those are findings of facts based
upon record. Consequently, exclusion of E-Clerx was in order and
cannot be interfered with.

13.     The exclusion of second comparable ICRA Techno Analytics
Ltd. was on the basis that it had engaged itself in processing and
providing software development and consultancy and engineering
services/web development services. The reasons for execution were
functional dis-similarities and that segmental data were unavailable.
Again the findings of the ITAT are reasonable and based on record.
The third comparable that the AO/TPO excluded is TCS E-serve. The
ITAT observed that though there is a close functional similarity
between that entity and the assessee, however, there is a close
connection between TCS E-serve and TATA Consultancy Service
Ltd. which was high brand value; that distinguished it and marked it
out for exclusion. The ITAT recorded that the brand value associated
with TCS Consultancy reflected impacted TCS E-serve profitability in
a very positive manner. This inference too in the opinion of Court,
cannot be termed as unreasonable. The rationale for exclusion is
therefore upheld. The assessee was aggrieved by the inclusion of
Accentia a Software Development Company. The Revenue is
aggrieved by the exclusion of Accentia from the TP analysis. The
DRP had directed its deletion. We observe that the ITAT has noticed
the unavailability of the segmental data so far as these comparables
are concerned. Furthermore, the functionality of this entity was
concerned, it is different from that of the assessee; Accentia was

ITA 1064 &1083/2017                                          Page 5 of 6
engaged in KPO services in the healthcare sector.

14.     In view of the above findings, this Court is of the opinion that
no substantial question of law arises. The appeals are dismissed.

                                                S. RAVINDRA BHAT

                                              SANJEEV SACHDEVA
NOVEMBER 28, 2017

ITA 1064 &1083/2017                                             Page 6 of 6
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