TMI Blog2019 (6) TMI 1489X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to uphold the findings of the ld CIT(A) and reject the ground taken by the Revenue. TP Adjustment - inclusion of Allsec Technologies Ltd., as comparable - It is an admitted fact that the Allsec Techonlogy Ltd. has incurred losses for past three financial years - HELD THAT:- CIT(A) has recorded categorical finding to the effect that the PBIT margins for the aforesaid years have turned negative on account of charges towards depreciation and amortization which is a normal cost which arises during the course of business operations and not on account of some extraordinary factors. The Ld. CIT(A) further stated that for the previous year ended 31st March, 2007, the company had positive PBIT - once comparable is similar to the functions carried out by the assessee, then consistent loss of one or two years is not good ground for rejection of company for comparables. See JOY ALUKKAS INDIA PVT. LTD. [ 2014 (6) TMI 80 - KERALA HIGH COURT]. Exclusion of Eclerx Services Ltd. as comparable - As in Maersk Global Service Centres [ 2015 (1) TMI 917 - ITAT MUMBAI] had taken similar view and excluded Eclerx Services Ltd. from the list of comparable where the taxpayer is engaged in provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... national transaction. - I.T. APPEAL NOS. 4717, 4873 (MUM.) OF 2017 - - - Dated:- 26-6-2019 - C.N. Prasad, Judicial Member And G. Manjunatha, Accountant Member For the Appellant : Jitendra Jain For the Respondent : Jayant Kumar ORDER G. MANJUNATHA, ACCOUNTANT MEMBER 1. These cross appeals filed by the assessee, as well as the Revenue are directed against order of the Ld CIT(A)-57, Mumbai, dated 30/03/2017 and they pertains to AY-2011-12. Since, the facts are identical and issues are common, for the sake of convenience, these appeals were heard together and are disposed of by this consolidated order. 2. The assessee in its appeal has filed following grounds of appeal. 1. Reference to the TPO under section 92CA of the Act 1.1 Based on facts and circumstances of the case, the learned CIT(A) erred in confirming the action of Deputy Commissioner of Income-tax - 3(3)(1) ('AO') in making reference of the Appellant's case to the Additional Commissioner of Income-tax (Transfer Pricing)- 3(2) ('TPO'), without applying his mind and without recording his satisfaction, thereby making the entire process of referring the matter to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar but a consistent loss maker and various judicial pronouncements have already held that a consistent loss cannot be treated as valid comparable. 3. Whether on the facts and in the circumstances of the law, the ld. CIT(A) was justified in deleting the adjustment of ₹ 1,05,26,570/- in respect of providing Information Technology Enabled Support Services to AEs by wrongly (excluding) two comparables viz. Allsec Technologies Ltd. and E-clerx Services Ltd. without appreciating the fact that E-clerx' Services Ltd. is a KPO and is comparable with the assessee. 4. The brief facts of the case are that the assessee company is engaged in the business of providing Information Technology Enabled Support (ITES) services and Business Support (BS) services to its AE, The services rendered by the assessee to its AE includes IT infrastructure implementation support services, Internet data centre services, managing software, computer system and programmes, internet and intranet application services/facilities, Database and system networking, project management, training on functional and technical aspects and end user training. The assessee had entered into various internationa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pricing Officer for determination of ALP of International Transactions with its AE. During the Transfer pricing proceedings, the TPO has issued notice 92CA(2) of the Act along with questionnaire, dated 12/08/2013 and requested the assessee to furnish all the necessary details and documents in respect of Arm's Length Price. In response, the ld. AR for the assessee attended from time to time and furnished information called for. During the course of TP proceedings, the AO called upon to assessee to explain as to why certain comparables chosen for benchmarking, its international transactions cannot be accepted/rejected for the reasons stated in show-cause notice. The assessee has filed detailed reply in respect of comparables selected for benchmarking in its international transactions. The TPO after considering relevant submissions of the assessee, analyzed the comparables selected by the assessee, and after considering relevant facts, rejected certain comparables and selected five set of comparables with average margin of 25.15%. Further, the TPO after considering the value of international transactions arrived at an adjustment of ₹ 1,05,26,570/- in respect of ITES service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M/s. GTL 1250296 31.08.2010 1,74,000 1,91,07,636 1250328 31.12.2010 2,43,600 M/s. GUL 1250295 31.08.2010 1,02,000 1,12,01,028 1250327 31.12.2010 1,42,800 M/s. GRL 1250294 31.08.2010 66,000 72,47,724 1250326 31.12.2010 92,400 Total 16,70,400 7,64,30,544 As against the realized amount of ₹ 7,64,30,544 the total cost for the ITES services rendered to the AE was ₹ 6,94,82,313. The assessee had adopted Transactional Net Margin (TNM) Method as the most appropriate method to benchmark the aforesaid transaction. Further, the assessee has used the ratio of operating margin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was submitted that with respect to ITES services provided to AE's, the arithmetic mean of operating margins of comparables in the final sample, works out to 5.19 % on operating cost as against assessee's margin of 10% on operating cost of 494.32 cr. Without prejudice to the above, the assesses submitted that on an overall basis at the entity level, the assesses had earned an operating margin of 2.22% on its operating costs including depreciation (i.e. ₹ 10.96 cr/₹ 494.32 cr). In light of the aforesaid, it was submitted that the aforesaid margin analysis (i.e. of both internal and external operating margins) confirms that the international transaction entered by the assesses w.r.t to provision of ITES services to its AE's was at arm's length price and accordingly, the TNMM Method' has been correctly adopted by the assesse for determining the arms' length price w.r.t the aforesaid transaction. As regards, ITES services, the assessee was asked to show cause as to why the following companies should not be rejected for the reasons specified therein: Sr. in the final set of comparable Name of the comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered as a comparable for BS services cannot be a ground for rejecting the same from BS services. In light of the above, we wish to submit that this company is a comparable company and hence (lie same should be accepted in the final set of comparable. Godrej Infotech Limited - The assessee contended (hat Godrej Infotech Limited are services and consulting company. Its products include ERP. Microsoft Dynamics, SAP. It provides various services like IT consulting, ERP implementation, software, product sales, maintenance support which includes consultancy and software maintenance services to its clients.. Since, the said company is engaged in the business of providing IT products and services, mainly ERP Consultancy and software services and solutions, it has been proposed to be excluded from the final set of comparables. On perusal of the scope of work fin- ITES services provided by the ASSESSEE to its AE's it can be observed that the; assessee is engaged in the business of providing IT Infrastructure implementation and support services as well as managing software, computer systems and program*. The, assessee also provided database and system networking service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6.81 crore. Though it might be functionally comparable but a continuous toss for the past three years indicates aberration in the operations of this company. Loss cannot be the steady state of any business. Therefore, it cannot be used as a comparable company to benchmark the assessee's transaction. Thus, this company is rejected. (II) Cameo Corporation Services Ltd - this company operates in three segments namely (a) services to banks, insurance companies and corporate where it provides custodian services for cheques and documents, (b) services to telecom companies, and (c) medical transcription services However, from the accounts it is seen that segmental accounts have not been reported which makes it difficult to determine the profitability in respect of ITeS. Therefore, this company is rejected, (iii) Godrej Infotech Limited: From the assessee's description given above of this company, it is clear that this company deals in software products and does not provide ITeS. Therefore, this company is rejected as a comparable. (iv) Accentia Technologies Ltd - The assessee's main contention is that this company is engaged in providing medical transcription and bil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to the manufacturing industry. The major costs in the software and ITES industry which includes the assessee are variable costs such as salary, travelling expenses, communication expenses etc. This fact can be verified from the assessee's own case. Margins in any industry vary with change in turnover only when the fixed costs involved are significant. In the absence of any significant fixed costs, the margins in the software/ITES industry are not linked to the turnover of the company. This can be seen from the fact that many small companies have much higher margins than the big companies. In view of this, the assessee's contention is rejected (vii) During the course of hearing the assessee was requested to explain why the comparable M/s. Caliber Point Business Solutions Ltd (y.e. 31st Dec 2010) should not be rejected on account of the fact that the year ending of the comparable is different from that of the assessee (y.e 31st March 2011). The assessee explained that as per the provisions of Rule 10B(4) of the Income-tax Rules 1962, the data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pro Fit level Indicator ['PLI = PBI'/Operating cost including dep}] (Amount in cr Rs) I Sr Company Name Year Service a Income Operating Cost including Dep Operating Margin PBIT Op margin as % of Op Cost A B C D E F G-F/E100 1 Accentia Technologies March11 108.313 86.822 21.490 24.75 2 Eclerx Services March 11 341.71 202.01 139.70 69.15 3 Infosys BPO Ltd. March 11 1,129.11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racts for procurement of goods and services for execution of the project and provide Providing back office support in matters relating to accounting, taxation, insurance, HR Administration An arm's length markup of 7% was added to the cost of ₹ 7,93,50,250 [which included all the personnel cost and all overhead expenses (including depreciation)] to determine the arm's length price of the international transaction. Accordingly, RGMSL (amalgamated with the assessee) had raised the following invoices on respective AE's. Name of the AE Invoice No Date Amount in USD Amount in Rs M/s. GKL 72 31.07.2010 3,95,000 4,30,51.840 192 31.12.2010 5,53.000 M/s. GOTL 70 31.07.2010 1,13,500 1,23,70,592 190 31.12.2010 1,58,900 M/s. GTL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vate Limited March 11 83.41 74.86 8.55 11.43 2 Cameo Corporate Services Ltd. March 11 28.71 26.68 2.03 7.61 3 GMR Corporate Affairs Pvt Ltd March 11 9.96 9 23 0.73 7.95 4 TVS-E-Servicetec Ltd March 11 31.29 35.30 (4.01) (11.35) 5 Techprocess Solutions Ltd March 11 57.53 56.65 0.88 1.55 Average 3.44 Accordingly, it was submitted that with respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... This company is rejected as comparable. 2 TV S-E Servicetec Ltd. The assessee contended that this company provides services similar to the assessee's On perusal of the annual report, it is seen that the company deals in repairing of electronic devices and other such activity. Thus, REJECTED 3. Apitco The assessee rejected this company on functionality On perusal of the annual report, it is seen that the company provides marketing support services. So ACCEPTED as comparable 4 ICRA Management consulting Services Ltd. (ICRAMCS) The assessee rejected this company on functionality On perusal of the annual report, it is seen that the company provides marketing support services. So ACCEPTED as comparable 5 India Cements Capital. Ltd. The assessee rejected this company on functionality On perusal of the annual report, it is seen .that the company provides marketing support services. So ACCEPTED as comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under:- a. Value of international transaction is ₹ 8,49,04,768/- b. ALP of the International transaction (at 14.05% markup on cost of ₹ 7,93,50,250) is ₹ 9,04,98,960/- c. 105% of the International transaction value. ₹ 8,91,50,006/- d. 95% of the International transaction value. Rs,8,06,59,529/ e. Amount of adjustment with respect to BS services is ₹ 59,94,1927- (₹ 9,04,98,960 - ₹ 8,49,04,768) As the ALP falls outside the limit of +/- 5% of the transaction value, an amount of ₹ 59,94,192/- is adjusted to the international transaction. Conclusion: In view of the above discussions, the total amount of adjustments in determining ALP of international transactions are proposed and summarised as under: Sr Transaction Adjustment (in Rs.) 5.1 Providing Information Technology Enabled Support Services to AEs 1,05,26,570 5.2 Providing Business Support Services to AE's 59,94,192 Total 1.65.20,762 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Therefore, it remains the owner of the asset and accordingly it has claimed depreciation on the said asset as per provisions of section 32 of the Act. The assessee further stated that as per the requirement of Companies Act, 1956), it is required to follow all accounting standard issued by the ICAI for preparation of financial statements. Accordingly, as per the accounting standard -19 issued by the ICAI, the assessee was obliged to account lease income as finance lease in its books of account. The assessee further stated that in the books of accounts, it is shown only income by way of lease finance charges of ₹ 19,50,32,448/-, but since the actual lease rent received by it including principal is ₹ 36,40,34,876/-, it has offered the same as income. With regard to depreciation, the assessee submitted that as per Provisions of the I.T. Act, the assessee has claimed depreciation in respect of leased assets, because the ownership of the asset remains with the assessee even though the same has been shifted to the lessee's premises. 9. The AO after considering relevant submissions of the assessee and also taking note of accounting standard-19 issued by ICAI observed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act, it is precondition that the asset should be owned by the assessee. Since the assessee has owned the asset, it is rightly claimed depreciation on asset leased out to M/s Reliance M/s Reliance Industries Ltd. The assessee has also relied upon the decision of the Hon'ble Supreme Court in the case of I.C.D.S Ltd. v. CIT [2013] 29 taxmann.com 129/212 Taxman 550/350 ITR 527. 11. The CIT(A), after considering relevant submission of the assessee and also relied upon various judicial precedence, including the decision of the Hon'ble Supreme Court in the case of I.C.D.S. Ltd. (supra) held that as could be seen from the facts brought out by the AO during the assessment proceedings, it is very clear that the facts of the assessee's case are similar to the facts of the I.C.D.S. Ltd. case (supra), therefore, depreciation is allowable in the hands of the owner of the property and further it is not material, the location of the asset whether it is in the possession of the lessee or lesser, but it should be used for the purpose of business. Accordingly, he directed the AO to delete addition made towards disallowance of depreciation on leased assets. 12. Insofar as, addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the lessee and the lessor cannot claim depreciation on the leased plant and machinery. The ld. DR further submitted that the AO has brought out clear facts to the effect in light of AS-19 issued by the ICAI, as per which, in finance lease the lessee can claim depreciation on leased asset because all the risk and rewards incidental to ownership of an asset shall transferred to the lessee. The Ld. DR further submitted that as per Accounting Standard-19, the lease term is clearly would be equal to the normal economic life of the asset, even if title is not transferred. It is worth to note that AS-19 prescribes that the depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the lessee adopts for depreciable assets that are owned. Thus, it is clear that AS-19 allows the lessee to claim depreciation on the asset and not the lessor. Therefore, the assessee's claim for depreciation on the ground that the lessee did not claim depreciation on leased plant and machinery is incorrect. The Ld. DR further submitted that the ld. CIT(A) even failed to comment on case laws rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore merely for the reason that AS-19 prescribes depreciation to be claimed by lessee in case of finance lease, the claim of depreciation cannot be disallowed in the hands of the assessee, when material clearly indicate that lessee did not claim depreciation on leased assets and assessee is also continued to be the ownership of the asset. In this regard, he relied upon various judicial precedence including the decision of the Hon'ble Supreme Court in the case of ICDS Ltd. The assessee has also relied upon following decisions:- (1) Minda Corpn. Ltd. v. Dy. CIT [2016] 69 taxmann.com 317 (Delhi - Trib.) (2) Bharti Hexacom Ltd. v. Asstt. CIT [2016] 68 taxmann.com 357 (Delhi - Trib.) (3) Royal Bank of Scotland N.V. v. Dy. CIT, International Taxation [2017] 88 taxmann.com 330 (Kol. - Trib.) (4) Tata Consultancy Services Ltd. v. Asstt. CIT [2017] 88 taxmann.com 399 (Mum. - Trib.) (5) Industrial Finance Corpn. of India's case (supra) (6) SBI Home Finance Ltd. v. CIT [2005] 148 Taxman 585 (Cal.) (7) Rajshree Roadways v. Union of India [2003] 129 Taxman 663 (Raj.) (8) K.M. Sugar Mills Ltd. v. CIT [2015] 57 taxmann.com 68/231 Taxman 245/373 ITR 42 (SC) 16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bundantly clear that no depreciation relating to the plant and machinery given on lease has been debited in the books of account. However, the assessee has claimed depreciation in the statement of total income as per I.T. Act and also offered total lease rental received including lease rental on account of principal portion to taxation to argue that it is entitled for depreciation. The assessee has filed a confirmation from the lessee and stated that lessee did not claim depreciation on plant and machinery, because the ownership of the asset is not transferred to the lessee during subsistence of lease period. Accordingly, the assessee argued that particular mode of recording the transactions in books is of no consequence, but what is relevant is nature of the transactions which to be considered to arrive at proper conclusion. The assessee has also referred Circular No. 2 of 2001 of CBDT, where it was mentioned that the method prescribed in AS-19 per se will not effect the claim of depreciation in the hands of the owner of the assets and the depreciation on assets will be guided by ownership of the asset and use of assets for the purpose of business. As regards the location of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -19 issued by ICAI is required to be followed mandatorily for preparation of financial statements, but when it comes to taxation of income, what is relevant is the provision of the Act which deals with taxability of income, but not guideline issued by the ICAI. This fact has been further reiterated by CBDT vide its Circular No.2, dated 09/02/2001, where it was clarified that AS-19 will not have any implication on allowance of depreciation on assets under the provisions of the Income Tax Act. Further, the assessee has also filed a confirmation from the lessee, where it was stated that lessee did not claim depreciation on leased asset. From the above facts, it is very clear that the assessee is continued to be owner of the asset even after the lease. Further, the entries in books of account is not determinative for deciding the nature of income which is assessable under the Act, what is relevant is statute as per which ownership of an asset is must for claiming depreciation and in this case, there is no doubt of whatsoever with regard to ownership which is clearly evident from the lease agreement and accordingly we are of the considered view that the assessee is rightly claimed depre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 'title' to the interests whether he holds them for his own benefit or the benefit of another. Thus the term title unlike owner .. It defines the term 'ownership' as - Collection of right to use and enjoy property, including right to transmit it to others.... The right of one or more persons to possess or use a thing to the exclusion of others. The right by which a thing belongs to someone in particular, to the exclusion of all other persons. The exclusive right of possession, enjoyment or disposal; involving as an essential attribute the right to control, handle, and dispose. The same dictionary defines the term own as 'To have a good Legal title These definitions essentially make ownership a function of legal right or title against the rest of the world. However, as seen above, it is nomen generalissimum, and its meaning is to be gathered from the connection in which it is used, and from the subject matter to which it is applied. 22. A scrutiny of the material facts at hand raises a presumption of ownership in favour of the assessee. The vehicle, along with its keys, was delivered to the assessee upon which, the lease agreement was en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Lessee shall deliver to the Lessor the assets at such place as the Lessor may specify in good repair, condition and working order. As soon as the return of the asset the Lessor shall refund the amount of security deposit. If the lessee fails to deliver the equipment to the Lessor in accordance with any direction given by the Lessor, the Lessee shall be deemed to be the tenant of the assets at the same rental and upon the same terms herein expressed and such tenancy may be terminated by the Lessor immediately upon default by the lessee hereunder or upon 7 days notice previously given.. 23. Revenue's objection to the claim of the assessee is founded on the lease agreement. It argued that at the end of the lease period, the ownership of the vehicle is transferred to the lessee at a nominal value not exceeding 1% of the original cost of the vehicle, making the assessee in effect a finance. However we are not persuaded to agree with the Revenue. As long as the assessee has a right to retain the legal title of the vehicle against the rest of the world, it would be the owner of the vehicle in the eyes of law. A scrutiny of the sale agreement cannot be the basis of raising ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts are one and the same. However, we shall discuss the case law cited by both the parties on the point. 27. Finally, learned senior counsel appearing on behalf of the assessee also pointed out a large number of cases, accepted and unchallenged by the Revenue, wherein the lessor has been held as the owner of an asset in a lease agreement. CIT v. A.M. Constructions [1999] 238 ITR 775 (AP); CIT v. Bansal Credits Ltd. [2003] 259 ITR 69/126 Taxman 149 (Delhi); CIT v. M.G.F. (India) Ltd. [2006] 285 ITR 142/[2007] 159 Taxman 335 (Delhi); CIT v. Annamalai Finance Ltd. [2005] 275 ITR 451/146 Taxman 627 (Mad.). In each of these cases, the leasing company was held to be the owner of the asset, and accordingly held entitled to claim depreciation and also at the higher rate applicable on the asset hired out. We are in complete agreement with these decisions on the said point. 20. The assessee has relied upon the decision of ITAT, Delhi in the case of Minda Corpn. Ltd. (supra). We find that the Tribunal has considered identical issue in light of AS-19 issued by ICAI and held that AS-19 on account of lease issued by ICAI only applicable for the accounting lease transactions in the books ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ologies Ltd., as comparable for determination of arm's length price of international transactions with Associated Enterprises. 23. The ld DR submitted that the ld CIT(A) was erred in including Allsec Technology Ltd. as comparable to the assessee without appreciating the fact that the company is incurring loss for last three years and also it is functionally different from the assessee's profile. The ld DR further submitted that various judicial pronouncement have already held that consistence loss company cannot be treated as valid comparable. 24. The ld. AR for the assessee submitted that Allsec Technology Ltd. is functionally comparable to the profile of the assessee and having once accepted the fact that it is functionally similar to the profile of the assessee, there is no reason for The TPO to exclude this company on the ground that it has incurred consistent loss in last three financial years. The ld AR further submitted that it has positive margin and is having positive PBITD margin for the past three years. The PBITD margin for the aforesaid years is negative on account of depreciation and amortization, which is a normal cost arising during the normal course o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ec Technology Ltd. as comparable and hence, we do not find any infirmity in the findings of the ld. CIT(A), accordingly, reject ground taken by the Revenue. 26. The next issue taken by the Revenue by way of ground No.3 is exclusion of Eclerx Services Ltd. as comparable for the purpose of determination of Arm's Length Price of international transaction with AE. 27. The ld. DR submitted that the ld. CIT(A) excluded Eclerx Services Ltd. Without appreciating the fact that the company is comparable to the functions carried out by the assessee and this fact has been brought out by the TPO in its order as per which functions carried out by the assessee are similar to the functions carried out by the Eclerx Services Ltd. The ld. CIT(A) without appreciating the fact, simply excluded the company on the ground of functionally different from the profile of the assessee. 28. The Ld. AR for the assessee, on the other hand, strongly supported the order of the ld. CIT(A) and submitted that Eclerx Services Ltd. is a KPO company providing data analytics services and process solutions to verticals like financial services, sales and marketing divisions of largest fortune 500 scale compani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adjustment of ₹ 52,13,311/- in respect of international transaction of provision of business support services to AEs. 31. The assessee has challenged exclusion of TVS-E Services Ltd. from final set of comparables for benchmarking margin earned from provision of business support services to its AE on the ground of being functionally different. The assessee has also challenged the order of the ld. CIT(A) in accepting Atico Ltd. and ICRA Management Consulting Services Ltd. as comparables in benchmarking the margin earned from business support services to its AE TVS-E Services Ltd. 32. The ld. AR for the assessee submitted that TVS-E Servicetec Ltd. is functionally comparable to the assessee, because it is providing warranty management services for leading IT brands, break fix services for credit cards terminals and e-auction services which is in nature of business support services. Therefore, it is functionally similar to the functions carried out by the assessee and hence the Ld. CIT(A) was erred in rejection of TVS-E Services Ltd. from the list of comparables. 33. The Ld. DR, on the other hand, strongly supported the order of the TPO/CIT(A) and argued that at any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is comparable to the activities of the assessee because some of the activities carried out by the Aptico Ltd. are similar to assessee's functions. 38. We have heard both parties, perused the material available on record and gone through orders of the authorities below. On perusal of annual report of Aptico Ltd., we find that the company is engaged in providing technical consultancy relating to asset reconstruction companies, management services, micro enterprises development, skill development etc. It is also engaged in the activity of skill development, tourism research studies, micro enterprise development, cluster development energy related services, etc. This is a government company and the statutory auditor of the company is appointed by the CAG. Its financial are mainly dependent upon earned policy requirement of the government. Therefore, we are of the considered view that this company cannot be comparable to the assessee which is mainly engaged in providing business support services to its AE in the area of evaluation and recommendation for finalization of contracts for procurement of goods and services and also back office support in matters relating to accounting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction advisory services. We further noted that the assessee is a captive service provider to its AE which cannot be considered to a company which is involved in various kind of services including several complex services in the area of policy advisory and PPP transaction. Therefore, we are of the. considered view that the Ld. TPO as well as the Ld. CIT(A) was erred in considering ICRA Management Consulting Services Ltd. as comparable for the purpose of determination of ALP of international transaction. Hence, we direct the TPO/AO to exclude ICRA Management Consulting Services Ltd; from the list of final set of comparables. 42. Finally, the TPO is directed to re compute transfer pricing adjustment in respect of international transaction of provision of business support services to AEs after excluding Apitco Ltd. and ICRA Management Consulting Services Ltd. from the final set of comparables for benchmarking margin earned from provision of business support services to AEs. 43. The assessee has taken other grounds challenging the validity of reference to the TPO u/s 92CA of the Act. The ld. AR for the assessee, at the time of hearing, submitted that if Apitco Ltd. and ICRA Manage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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