TMI Blog2022 (4) TMI 1505X X X X Extracts X X X X X X X X Extracts X X X X ..... utsources major part of its work and that this company had an exceptional performance, high turnover, abnormal profits in the relevant assessment year. Hence, this company should not be considered as comparable to that of the assessee. Coral Hub Limited company is not comparable as unlike the assessee this company is outsourcing its services to third parties thereby resulting in low employee cost as compared to that of the assessee. Also this company should not be included on account of significant intangibles owned by this company. - ITA No. 7439/Del/2017 CO No. 40/Del/2018 Arising out of ITA 7439/Del/2017 - - - Dated:- 11-4-2022 - SHRI R.K. PANDA, ACCOUNTANT MEMBER AND MS. ASTHA CHANDRA, JUDICIAL MEMBER For the Assessee : Shri Tarandeep Singh, Advocate For the Department : Shri M Baranwal, Sr. DR ORDER PER ASTHA CHANDRA, JM The aforesaid appeal as well as cross objection ( CO ) has been filed by the Revenue and by the assessee against the order dated 26.07.2017 passed by the Ld. CIT(A)-38 Delhi ( CIT(A) ) pertaining to assessment year ( AY ) 2009-10. 2. The appeal of the Revenue is accompanied by an application for condonation of delay in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables which were not accepted by the Ld. TPO in toto. The list of these 7 comparable companies along with the TPO s remarks is reproduced below :- Sl. No. Name of Companies TPO s remarks 1. Aditya Birla Minacs Worldwide Ltd. This is an acceptable comparable 2. Cosmic Global Ltd. This is an acceptable comparable 3. Datamatics Software Solutions Ltd. Functionally different, persistent loss 4. Microgenetic Systems Ltd. This is an acceptable comparable 5. NSDL (ITES Seg.) Fails export filter 6. Spanco Ltd. (BPO seg.) This is not functionally comparable 7. In House Production Ltd.(Healthcare division segment) Fails export filter 4.3 Thereafter, the Ld. TPO proceeded to conduct a fresh search and arrived at the set of 16 comparable companies with average ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the list of comparable companies. 6. We will now proceed to examine each of these comparable companies. (i) Accentia Technologies Ltd. 6.1 The Ld. DR strongly relied upon the order of the Ld. TPO and drew our attention to the Ld. TPO s comments for rejecting the objection raised by the assessee against inclusion of this company in the list of comparables. The objections of the assessee and the TPO s remarks as recorded in para 8 page 24-25 of the TPO s order is reproduced below :- S.No. Name of the Company Objections of the assessee Remarks of this office 1. Accentia Technologies Ltd. The assessee s arguments for rejection on the grounds that the company is not functionally comparable. The objection is not acceptable as the services offered by the company are ITES services may be to a different sector in comparison to that of the assessee, but in TNMM so much of minor difference can be tolerated as TNMM allows some degree of flexibility and tolerance in the matter of selection of comparables because, under this method, Net Margins are co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ergers, demergers etc, one of such comparable companies considered by the authorities/ courts being Accentia Technologies Ltd. The Delhi High Court in the case of PCIT vs. Ameriprise India Pvt. Ltd. (ITA 461/2016) has upheld the finding of the Tribunal that M/s. Accentia Technologies Ltd. be excluded from the list of comparables on the ground that certain events had occurred during the previous periods which distorted the profitability thereby increasing the margin. The Ld. TPO in his order has made a remark that certain amount of functional dissimilarity is subsumed in TNMM at net margin level and hence this company is an appropriate comparable. We are unable to subscribe to this view of the Ld. TPO. In our opinion, this indicates that the Ld. TPO himself is somewhere convinced that functions performed by this company are different than that of the assessee. The Ld. CIT(A) has categorically recorded the finding that this company is functionally different than that of the assessee after looking at the annual report of this company and the information available in public domain submitted by the assessee before him. We notice that the Ld. CIT(A) directed to exclude this company as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any is retained as a comparable. In support of the Ld. TPO s remarks extracted above, the Ld. DR argued that even if this company is outsourcing its services to third parties, it is still incurring personnel costs forming part of the other expenses of the company. 7.2 The Ld. AR argued that this company is not comparable as unlike the assessee this company is outsourcing its services to third parties thereby resulting in low employee cost as compared to that of the assessee. In support of its contention the Ld. AR relied on the judgment of the Hon ble Delhi High Court in Rampgreen Solutions (P.) Ltd. vs. CIT [2015] 377 ITR 533 (Delhi). The Ld. AR further submitted that this company should not be included on account of significant intangibles owned by this company. 7.3 We have heard the Ld. Representative of the parties and perused the material on record as well as the orders of the Ld. TPO/AO/CIT(A). The Ld. CIT(A) after considering the detailed submissions made by the assessee in respect of exclusion of this company and various judicial pronouncements relied upon by the assessee in support thereof, directed the Ld. AO/TPO to exclude this company from the lis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... employment cost and very high cost on account of venture payment, which suggested that its business model was that of an outsourcing company and in view of this functional difference, Vishal Ltd. could not be considered as a comparable. Based on the above, we uphold the order of the Ld. CIT(A) and direct the Ld TPO/ AO to exclude Coral Hub Ltd. from the list of comparable companies. (iii) Cosmic Global Ltd. 8.1 The Ld. DR argued that this company was chosen by the assessee itself as comparable and that no objection before the Ld. TPO was taken by the assesee against its inclusion during the transfer pricing proceedings. The assessee challenged the inclusion of this company as comparable for the first time before the Ld. CIT(A). Therefore the claim of the assessee for the exclusion of this company being incomparable for the various reasons cited before the Ld. CIT(A), is not sustainable in law. 8.2 The Ld. AR argued that this company was wrongly chosen by the assessee and that there can be no estoppel against the provisions of the Act. In support, the Ld. AR relied on the decision of the Special Bench of the Tribunal in Dy. CIT vs. Quark System (P.) Ltd. (2010) 38 SOT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed and the AO/TPO is directed to exclude this company from the list of comparable companies. The Ld. CIT(A) arrived at his final conclusion to exclude this company by recording cogent reasons supported by precedents based on aforementioned submissions of the assessee and material on record. Hence, we endorse the findings of the Ld. CIT(A) and accordingly hold that this company be excluded from the list of comparable companies. 9. Accordingly, we conclude that there is no merit in the appeal of the Revenue as we have endorsed the findings of the Ld. CIT(A) in the matter of exclusion of the aforementioned three companies from the list of comparable companies. The Ld. AO / TPO is, therefore directed to determine the ALP of the international transaction of provision of ITeS afresh in consonance with our above directions. 10. In the result, the appeal of the Revenue is dismissed. CO No. 40/Del/2018 11. The assessee has filed Cross Objection ( CO ) in the above appeal ITA No. 7349/Del/2017 of the Revenueon the following grounds :- On the facts and in the circumstances of the case, the learned Transfer Pricing Officer II(6) / Assistant Commissioner of In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im benefits under Section 10A of the Act on the same. 12. The Ld. AR submitted before us that the cross-objections raised in Ground No. 1 to 8 are in support of the order of the Ld. CIT(A) and therefore need not be adjudicated upon. 13. Ground 9 and 10 relate to disallowance under section 14A read with rule 8D on account of exemption claimed on dividend income. We note from the Ld. CIT(A) s order that the assessee has suo moto offered Rs. 3 lakhs to tax as expenditure incurred towards earning exempt income. Thus, the grievance of the assessee is restricted to Rs. 1,33,608/- (which is difference between the actual disallowance by the Ld. AO of Rs. 4,33,604/- and the amount that has already been offered to tax by the assessee i.e. Rs. 3,00,000/-). The Ld. AR did not press this ground due to the smallness of the amount involved and therefore we have not adjudicated upon the same. Having said that, we clarify that this ground of cross-objection be not treated as decided against the assessee. The assessee reserves its right to argue this ground in succeeding years. 14. In the result, CO of the assessee is allowed for statistical purposes. Order pronounced in the open cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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