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2013 (11) TMI 967 - AT - Income TaxTransfer pricing adjustments - TPA - ALP - Selection of five additional companies arbitrarily Held that:- The TPO is very much within the statutory limitations in picking up the data for the last three years including that of the current year (AY 2008-09) for TP study. Therefore, AY 2007-2008 falls within that limitation. Therefore, no fault can be found on this - Ld Counsel has not brought any evidence to suggest that data of these companies used for the TP study relates to the AY 2007-2008 and not of the AY 2008-2009 No evidence was not brought to our notice to demonstrate that the FAR analysis, PLIs etc of these additional 5 comparables considered by the TPO in that case relate to that of the AY 2007-08 - Decided against assessee. Inappropriate filters for screening companies Turnover filter, employee cost and onsite revenue - Held that:- On the filter relating to providing maximum turnover limit when the minimum turnover limit is proscribed, the comparables Infosys Technologies Ltd and Wipro Ltd are the target companies - The issue is not adjudicated by revenue authorities meaningfully - The TPO should have provided maximum limits too and he should not have pickup up the comparable such as Infosys and Wipro Ltd which are giants with huge turnovers - If these two companies with high turnover and margins are excluded, the assessee PLI is at arm's length and consequently, the TP adjustments are not required The issue was remanded back for fresh adjudication. Functionally comparable companies Held that:- The giant companies namely, Infosys Technologies and the Wipro Ltd are not good comparables on the grounds of the nature of services, risk profile, revenues, ownership of intangibles, onsite vs offshore works, expenditure on advertising, sales promotion and R& D developments etc - The onus is on the assessee to demonstrate that the turnover' factor has impact on the operating profits' of the company - The orders of AO/TPO/DRP do not contain reasoning for inclusions of these two comparable - They do not contain any reasoning rejecting the objections raised by the assessee - On the issue of giantness It is a generic function and the turnover constitutes one of the factors contributing to the giantness - Assessee needs to demonstrate that the turnover factor influences the operating profits of the said comparables The issue was remanded back for fresh adjudication. Selection of comparable companies Non consideration Held that:- Loss making companies should not be deemed as good comparable considering the TNMM method - Loss and super profits are the extremities and the onus is on the assessee to explain the reasons with evidences to substantiate these extreme results in loss and super profits - As per the OECD TP guidelines, the losses or unusual profits/losses constitute extreme results and such results demands further examination into the reasons for such results - If such examination results in detection of the cogent reasons causing such losses there is need for adjustments to the margins or exclusions of that case for the purpose of comparability studies Following Willis Processing Services (I) (P.) Ltd. Versus Deputy Commissioner of Income-tax 2(3), Mumbai [2013 (3) TMI 415 - MUMBAI TRIBUNAL COURT] - Decided against assessee. Operating Margins Held that:- The TPO considered the interest on the loan as the non-operating one and he considered the related foreign exchange loss on interest on loan as the operating expense The foreign exchange loss on interest on loan warrants a similar treatment - Decided in favour of assessee. Working capital and risk adjustments Held that:- The orders of the Revenue do not contain the relevant analysis before rejecting the claim of the assessee in this regard - The order of the DRP and TPO in this regard was non-speaking order The issue was remanded back for fresh adjudication.
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