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2018 (1) TMI 1383 - ITAT PUNETransfer pricing adjustment - non reference to TPO - grievance of assessee is that in cases where the value of international transactions exceeded ₹ 5 crores, Instruction No.3 of 2003 issued by the CBDT mandates reference by AO to the Transfer Pricing Officer but in the present case AO had transgressed his jurisdiction by undertaking transfer pricing adjustment himself - Held that:- In view of the revised limits prescribed under the Action Plan for financial year 2006-07, which is drawn by CBDT itself and in view of the approach of Assessing Officer in assessment year 2009-10, we find no merit in the plea of assessee in this regard. AO under the revised Instruction of CBDT had exercised his jurisdiction in computing arm's length price of international transactions and we find no merit in the stand of assessee in this regard. No doubt, as per Instruction No.3 of 2003, dated 20.05.2003, the limit for making reference to the TPO was where aggregate value of international transactions exceeded ₹ 5 crores. In view of revised Action Plan, the action of AO in the present case, where the value of international transactions was to the tune of ₹ 10.42 crores, in not making any reference to the TPO is correct and no fault can be found with the exercise of jurisdiction by AO, under the said facts and circumstances. It may also be put on record that revised Instructions were later issued dated 16.10.2015 being Instruction No.15 of 2015. Thus, the additional ground of appeal raised by the assessee is dismissed. Selection of comparable - functinal profile - deselection of loss making company - Held that:- The accepted principle for benchmarking international transactions is to select the companies which are functionally comparable to the assessee and benchmark the international transactions undertaken by the assessee by comparing the margins shown by the assessee with the margins of selected external comparables. The concern CG-VAK Software and Exports Ltd. no change in the functionality of said concern, hence the said concern passes the first threshold limit of being functionally comparable. The second aspect which had weighed with the Assessing Officer in rejecting the said concern is losses shown by the said concern. The margin shown by the said concern in the preceding year was 3.84% and during the year is 0.29% i.e. it has shown positive margin and had not shown any losses. However, while allowing economic adjustment by way of working capital adjustment, the margins of said concern became negative but the said adjustment which has been allowed, does not determine the profitability of the said concern in the open market. Accordingly, we find no merit in the approach of Assessing Officer in this regard and hold that CG-VAK Software and Exports Ltd., is not persistent loss maker and is to be included in the final list of comparables. Coral Hub Ltd. not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, its expenditure on employment cost during the relevant period was a small fraction of the proportionate cost incurred by the assessee, apparently, for the reason that most of its work was outsourced to other vendors/service providers. Cosmic Global Ltd. is to be excluded from the final list of comparables on the ground of its outsourcing model as in different business model than the assessee in the year under consideration. Assessee is only engaged in providing technical support services to its associated enterprises and hence, the concern Accentia Technologies Ltd. is not functionally comparable to the assessee. Exclusion is E4e Healthcare Business Services Pvt. Ltd. on the ground that the same is not functionally comparable being engaged in providing healthcare outsourcing services.
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