TMI Blog2016 (8) TMI 1187X X X X Extracts X X X X X X X X Extracts X X X X ..... ch less recording the reasons, proceeded to hold that in absence of segmental information E-Infochip Bangalore Ltd. must be excluded from consideration, directed exclusion of E-Infochip Bangalore Ltd. We find that the Tribunal has committed a serious error. Tribunal’s directions to exclude E-Infochip Bangalore Ltd. from working out the transfer pricing, the judgment is reversed. - TAX APPEAL NO. 258 of 2016 - - - Dated:- 2-8-2016 - MR. AKIL KURESHI AND MR. A.J. SHASTRI, JJ. FOR THE APPELLANT : MR KM PARIKH, ADVOCATE FOR THE OPPONENT : MR SN SOPARKAR WITH MR B S SOPARKAR, ADVOCATE ORAL ORDER (PER : HONOURABLE MR.JUSTICE AKIL KURESHI) 1. The Revenue has challenged the judgment of the Income-Tax Appellate Tribunal raising following question : Whether Tribunal was justified on facts and in the circumstances of the case and in law in not appreciating on the issue of transfer pricing and erred in by resorting the issue back to the file of AO/TPO and directed AO to rework addition after excluding the aforesaid 2 companies without going to merits and facts of the case? 2. On 5.7.2016, after recording the submissions of the counsel for the revenue that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the comparable uncontrolled transactions, or between the enterprise entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realized by the enterprise and referred to in sub-clause (I) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm s length price in relation to the international transaction (or the specified domestic transaction]; 5. In the context of agreed application of TNMM method, the Revenue adopted the results of various companies including above two companies, despite strong opposition from the assessee. The final working out by the Assessing Officer was done in tune with the report of the TPO. The Tribunal with respect to Bodhtree Consulting Ltd. referred to orders passed by other Tribunals in similar background and noted that the financial results of this company were highly fluctuating from year to year. On such basis, the Tribunal provided for exclusion of such company for transfer pricing on the basis of TNMM. With respect to E-Infochip Bangal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t out of consideration. However, we notice that before the TPO also, the assessee had raised similar contention. The TPO rejected the contention on the ground that the said company was engaged only in software development. TPO had observed as under : B.11.2 As far as the contention regarding entity being engaged in software development and IT enabled services is concerned, the observation of the assessee is itself negated by the details submitted by the company, which was incidentally reproduced by the assessee in the reply to show cause notice also. The same is being reproduced again for convenience: e-infochips Bangalore Limited is engaged in the business of providing software development services, as mentioned below : I. Chip Designing and system verification by using complex systems languages like Specmen, Vera, Verilog. The major customers here comprise of IT / Semiconductor companies located abroad. II. Embedded technologies which involve system integrations and system porting using the correct language for scripting. The major customers in tis segment are designing new products and are in system development phase. III. Application software development for var ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re Ltd., we find that in the annual accounts of the company, with respect to the segment information it is stated that the company is primarily engaged in software development and IT enabled services which is considered the only reportable business segment as per Accounting Standard AS-17 segment reporting prescribed in Companies (Accounting Standard) Rules, 2006. We thus find that no segmental information is available. With respect to E-infochip Ltd. assessee had raided objection against its inclusion to which TPO in the order had directed to verify the facts and it was held that it cannot be included on the basis of diminishing of Revenues so long it was a not a consistent loss making company. Considering the aforesaid facts, we are of the view that the aforesaid two companies needs to be excluded while working out the comparability analysis and therefore uphold the plea of the assessee in excluding the margins of the aforesaid 2 companies. We therefore deem it fit to restore the issue back to the file of A.O./TPO, who after excluding the aforesaid 2 companies rework the addition as per facts and law. Needless to state that A.O./TPO shall grant adequate opportunity of hearing t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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