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2018 (3) TMI 1695 - ITAT PUNETPA - comparable selection criteria - functinal similarity - Held that:- The assessee was running an international call centre at Pune and was providing lower-end BPO services to its associated enterprises. This was the first year of operations of assessee, thus companies functionally dissimilar with that of assessee need to be deselected from final list. Certain mistakes in computing margins of comparables - Held that:- We find merit in the plea of assessee in this regard and delete the findings of CIT(A) vis-à-vis Safe Harbour Rules. However, in respect of rectification to be carried out in the margins of comparables, the Assessing Officer / TPO is directed to carry out the said rectification and give appeal effect to the assessee. The learned Authorized Representative for the assessee in this regard pointed out that in case the above said concerns are excluded, then the margins shown by the assessee would be within +/- 5% of mean margins of comparables and no other adjustment on account of comparables is to be made except the economic adjustments asked for. Accordingly, we direct the Assessing Officer to compute the margins of comparables and also to exclude the concern which we have so held in the paras hereinabove and compute the TP adjustment, if any, in the hands of assessee. Adjustment on account of capacity utilization - Held that:- As decided in assessee's own case it is evident that the capacity utilization adjustment has to be granted where there has been under utilization or lower utilization of the capacity. In the facts of the present case, we deem it appropriate to remit the issue back to the file of Assessing Officer to decide this issue afresh after considering the submissions of the assessee, documents on record and decisions of the Tribunal. Accordingly, ground no. 2 raised in the appeal is allowed for statistical purpose. Re-computing PLI of assessee by including expenses recovered as part of operating income and operating expenses; such re-working of PLI was in respect of margins of assessee and no such exercise was carried out in respect of margins of comparables finally selected - Held that:- While applying the transfer pricing adjustment, the endeavour is to compare like with like and hence, the said exercise should be carried out not only in spirit but in actual fact - The assessee is aggrieved by the action of TPO in adopting different methodology for computing its operating margins - certain costs were recovered from other concerns and the same should be excluded from its operating income and operating cost as it does not have bearing on the margins of assessee. We find merit in the plea of assessee in this regard. PLI adopted by the assessee and the TPO is operating income / operating cost and hence, only operating income and operating cost of assessee is to be considered for working the margins for the year under consideration. In case certain expenses have been incurred on behalf of related concerns, which in turn, have been reimbursed, then the same are to be excluded from both operating income and operating cost. Accordingly, we hold so and direct the Assessing Officer / TPO to re-work the margins of assessee in this regard and also of comparables. Working capital adjustment - Held that:- TPO had not taken into consideration the advance from customers while computing net current assets. The plea of assessee is that where the assessee had received advances from its customers which were reflected in the financial statements, hence the same needed to be considered while computing net current assets, which was not accepted by the TPO. The assessee had raised the contention before the CIT(A) of adopting same methodology for computation of working capital adjustment both for tested party as well as comparable concerns. The CIT(A) has accordingly, directed the Assessing Officer / TPO to examine the working and adopt the same methodology as adopted for the comparables. No error in the directions of CIT(A) in this regard, where in any case, for computing adjustments, if any, the same treatment to be given to both tested party and comparable concerns. - Appeals of assessee and Revenue are partly allowed.
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