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2019 (12) TMI 150 - AT - Income TaxTP Adjustment - Comparable selection - HELD THAT:- DRP in the third round of proceedings before us applied a new turnover filter i.e. since the assessee was a 100% exporter, it deemed it fit that only concerns having export activity atleast to the extent of 75% should be selected. Thus out of 09 concerns which were selected by assessee as a part of additional evidence, 05 concerns were held to be as not comparable. The assessee was engaged in export of 100% of its software / data to its AE for year under consideration. The assessee had selected TNMM method as the most appropriate method and applied PLI of OP over OC. In the TP study report, the assessee had used weighted margins of the comparables; however the TPO applied only the margins of the contemporaneous period. As against 14 concerns selected by the assessee, the TPO applied updated margins and also additional filters and finally selected 04 concerns as comparables. The assessee applying the additional filters of the TPO i.e. not considering persistent loss making concerns and concerns having high turnover and applying RPT filter of 25%, selected 09 comparables as additional evidence. The mean margins of the comparables was 12.8% as against the margin of the assessee at 9.90%. In the said list, the concern at serial no. 7, Allsec Technologies India Limited is selected by AO / DRP and there is no dispute. As far as the concern at Sr. 6, and 9, are concerned the learned AR for the assessee fairly admitted there is no dispute viz a viz its exclusion from the final list of comparables hence we uphold the same. Concern i.e. at Sr. 8 i.e. Eureka Outsourcing Solutions Pvt. Ltd., where the OP / TC of the concern was 0.25%, was rejected in the final assessment order and such a concern though having marginal profit cannot be said to be persistent loss making concern. Hence, we find no merit in the orders of authorities below and direct that the said concern be included in the final list of comparables. Balance list of 05 comparables which were rejected on the ground that the income from export activity of the said concern did not fulfill the filter of turnover to the extent of 75%. It may be pointed out that the TPO in the first order under section 92CA (3) of the Act had accepted the filter applied by the assessee of the persons engaged in export and no filter of the extent of export was applied. These proceedings started from the order of the TPO and travel to the Tribunal in two rounds and have been set aside by the Tribunal, with specific directions to consider the additional evidence filed by the assessee and if the same is based on the filters applied by the TPO, then the concerns selected by the assessee may be considered in the final list of comparables. The order of the AO / DRP suffers from infirmities in applying a revised filter in the set aside proceedings. We find no merit in the same. According we set aside the said directions of the AO / DRP. The concerns at Sr. Nos. 1 to 5 are to be included in the final list of comparables if they are found to be functionally comparable. This aspect has not been verified by the authorities below and the learned AR for the assessee has fairly admitted that the same may be verified. Accordingly, we direct the TPO to verify functionality of the said 5 concerns and if they are functionally comparable to the assessee, then the same may be included in the final list of comparable. Hence the ground of appeal raised by the assessee in this regard is allowed. Working capital adjustment - No such objection was raised by the assessee before the DRP against the original order and since this is a set aside matter, then no working capital adjustment can be allowed at this juncture. Hence, plea of the assessee is rejected. Thus, grounds raised by the assessee in this appeal are partly allowed.
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