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2014 (9) TMI 258 - AT - Income TaxSelection of comparables – High and low profit margin companies – Held that:- Following the decision in Deputy Commissioner of Income-tax, Circle-2(2) Versus Hellosoft India (P.) Ltd. [2013 (10) TMI 747 - ITAT HYDERABAD ] - companies having extraordinarily high profit/loss cannot be considered as comparables - the companies having extraordinarily high profit or loss are to be excluded as comparables - the AO is directed to re-calculate the ALP – Decided partly in favour of Assessee. Determination of ALP - Data of company not available from last 12 months – Held that:- The financial data of Maple e-Solution is not available for full financial year, it is available only for four months during the FY 2004-05 - the part period data cannot be considered as a comparable to determine the ALP - The AO considered the financial data of partial period of operation of Maple e-Solutions - the financial data of Maple e-Solutions cannot be considered as comparable to determine the ALP since it is part period data – Decided in favour of Assessee. Functionally different company – Salary cost as percentage of the total cost is very abnormal – Held that:- M/s. Vishal Information Technologies cannot be considered as a comparable case as this company was rejected in Brigade Global Services (P.) Ltd v. ITO [2014 (9) TMI 143 - ITAT HYDERABAD] - the employee's cost to total cost ratio is worked out at 2% as compared to the industry average of 30 to 40% - The assessee's employee's cost to total cost ratio is worked out at 47% - Since the employee's cost form major cost base in ITES service industries, the low ratio of comparables implies that it would not be providing services by employing its own sources - the assessee is not alike to M/s. Vishal Information Technologies Ltd. - M/s. Vishal Information Technologies Ltd., cannot be considered as comparables and it is to be excluded from comparables - Decided in favour of Assesse. Adjustment for the difference in rate of depreciation charged not granted - Profit before Depreciation and Tax to total cost as Profit Level Indicator not considered – Held that:- Assessee rightly contended that the TPO did not consider the fact that the margin of the Assessee Company falls within the ± 5% range of the arithmetic mean of the comparables – relying upon Market Tools Research Pvt. Ltd. Versus Asst. Commissioner of Income-tax [2013 (12) TMI 414 - ITAT HYDERABAD] - the rates of depreciation adopted by the assessee are significantly different from straight line as compared with WTP, higher rate than that prescribed in schedule VI those adopted by the comparable companies suitable adjustment for the different has to be made or the profit before depreciation may be considered - the depreciation has impact on the profit margin of the assessee - depreciation adjustment is to be made - the AO is directed to use the PLI as PBDIT – Decided in favour of Assessee.
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