TMI Blog2016 (12) TMI 1645X X X X Extracts X X X X X X X X Extracts X X X X ..... t of +/-5% as per the proviso to Sec 92C(2) - Held that:- A perusal of the directions of DRP shows that the DRP has granted benefit of +/-5% to the assessee without granting standard deduction. The proviso to Section 92C has been amended by the Finance (No.2) Act, w.e.f 01.10.2009. Prior to the amendment the assessee had option to adopt a price different from the arithmetical mean by an amount not exceeding 5% of such arithmetical mean, that is the assessee had an option to claim the marginal relief of 5% with reference to the arithmetical mean, irrespective of the range of actual deviation between the margin disclosed by the assessee and the average mean margin. After the amendment, this option is not available to the assessee. This marginal relief partake the character of standard deduction. After the amendment this standard deduction is not available to the assessee. The ground no.8 is remitted back to the Assessing Officer to grant the benefit of +/-5% without granting standard deduction. Accordingly, ground raised in the grounds of appeal by the assessee is allowed for statistical purposes. - ITA No. 593/Pun/2015, ITA No. 438/Pun/2015 - - - Dated:- 28-12-2016 - R. K. Panda ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... search methodology adopted by the Appellant without any cogent reasons 2.1 The learned DCIT pursuant to the directions of learned DRP erred in law and on the facts and in circumstances of the case in disregarding search methodology with respect to the provision of IT enabled and market support services adopted by Appellant without any cogent reasons. 3. Use of financial information of comparable companies only for assessment year 2010-11 and non-consideration of contemporaneous data 3.1 The learned DCIT pursuant to the directions of learned DRP erred in law and on the facts and in circumstances of the case in not considering the multiple year data and contemporaneous data i.e. data available at the time of undertaking the transfer pricing study for determining the arm's length price of international transaction pertaining to IT enabled and market support services. 4. Rejection of a comparable company 4.1 The learned DCIT pursuant to the directions of learned DRP erred in law and on the facts and in circumstances of the case in rejecting functionally comparable company selected by the Appellant in its transfer pricing study report. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r known as Jeevan Softech Ltd. ) at 39.64%. 2. The Assessing Officer/Dispute Resolution Panel/Transfer Pricing Officer has erred in including ICRA (Online) Ltd. (Segmental) as comparable company. 3. The Assessing Officer/Transfer Pricing Officer has erred in considering Eclerx Limited as comparable company and the Dispute Resolution Panel has erred in not excluding the said company on the ground of functional comparability. 4. The Appellant craves leave to add, alter, amend, substitute and/or modify in any manner whatsoever all or any of the foregoing grounds of appeal at or before the hearing of the appeal. 4. The Revenue in appeal has impugned the findings of DRP by raising following grounds: 1. Whether DRP was right in law and on facts in excluding functionally comparable companies only on the basis of turnover, when the assessee himself had not applied any such criteria. 2. Did the DRP fall into error in not appreciating the terms of Rule 10B(2) of the IT Rules, 1962 regarding functional comparability. 5. Shri Ketan Ved with Shri Amit Singhal appearing on behalf of the assessee submitted that if certain companies viz. Genesys Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment year 2010-11 decided on 31.05.2016 has held that due to extraordinary events during the year ACCENTIA is not a good comparable to entities engaged in ITeS. 5.3 The ld.AR in respect of Fortune Infotech Limited (hereinafter referred to as FORTUNE ) submitted that the company was initially rejected by the assessee as sufficient data was not available in respect of the said company in public domain. Subsequently, when the relevant information was available in public domain the assessee prayed for including the company in the list of comparables. The DRP directed the Assessing Officer (AO) to include Fortune Infotech Limited in the list of comparables provided it fulfills all the filters used by the TPO in his order. The DRP categorically mentioned that the unadjusted operating margin of FORTUNE is 19.62% and working capital adjusted margin of the said company is 13.30%. However, the Assessing Officer while passing the order u/s 143(3) rws 144C(3) of the Act has taken the margin of FORTUNE as 21.80%, without assigning any reason. The assessee has filed rectification petition u/s 154 of Act and the same is still pending for final disposal. The ld.AR prayed for directions to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to exclusion of Eclerx Services Ltd. from the list of comparables on the ground of turnover filter without any detailed discussion. The ld.DR prayed for including the company in final list of comparables. 7. The ld.AR controverting the submissions made by the ld.DR submitted that a perusal of order by TPO would show that one of the contentions of the assessee in respect of Eclerx Services Ltd., was that the company fails to satisfy turnover filter. In the objections before DRP, the assessee argued for excluding Eclerx Services Ltd from the list of comparable companies inter-alia on the ground that the total turnover of the assessee during the year under consideration was ₹ 14.33 crores as compared to the turnover of Eclerx Services Ltd. which is ₹ 257.02 crores. The ld.AR submitted that the co-ordinate Bench of the tribunal in assessee s own case for A.Y 2009-10 has excluded Eclerx Services Ltd., on account of functional differences. The assessee in additional ground of appeal No.3 has assailed the directions of DRP in excluding Eclerx Services Ltd. only on the basis of turnover. The company is liable to be rejected on ground of functional differences, as w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as unadjusted operating margin of 112.31%. The assessee has given operating margin trend of the company over the three years. The same is tabulated herein below: Financial Year Unadjusted operating margin (OP/OC) 2007-08 46.82% 2008-09 57.91% 2009-10 112.31% We find that the co-ordination Bench of the tribunal in the appeal of assessee for assessment year 2007-08 2008-09 has excluded GENESYS from the list of comparables on account of abnormally high profits. The relevant extract of the findings of Tribunal are as under: 29. The next plea of the assessee is to exclude Genesys International Corporation Ltd. from the list of final comparables on the ground that for the financial year ended 31.03.2008 corresponding to the year under consideration before us, the said concern has made abnormally high profit of 46.82%. The plea raised by the assessee is on similar footing as was made in the appeal for assessment year 2007-08 in the context of the exclusion of Informed Technologies India Ltd. Similar proposition has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies held them not to be comparable with ITE service provider. The relevant extract from the order of the Tribunal is reproduced hereunder for ready reference: '(2) Genesys International Ltd. 17. It was the contention that this company functions in two horizontals, and is having super profits. It was further submitted that this company is not only in software development but also in Geospatial Services, which are highly technical. It also involves in consulting activity. It was the contention that this company was analysed by the coordinate Bench of the Tribunal at Delhi in the case of M/s. Mercer Consulting (India) Ltd. v. DCIT (vide order dated 6th June, 2014 in ITA No. 966/Del/2014), wherein this company was excluded in that case. Learned counsel for assessee relied upon the findings of the Tribunal vide paras 14.2 and 14.3, in that case, which read as follows- 14.2. We have heard the rival submissions and perused the rival materials on record. It has been noticed supra that assessee is basically providing various services to the customers of its AEs in relation to human resources which are more or less centered around the employees of the prospective cli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the facts of the instant case, we find that the services rendered by Genesys fall under clause (vi) with the heading 'Geographical Information Systems Services', whereas those rendered by the assessee fall partly under clause (vii) with the heading 'Human Resources Services' and partly under clause (xi) with the heading 'Payroll'. On juxtaposition examination of these two sets of services, we find that there is a vast difference which make one quite distinct from the other. In view of such functional incomparability between assessee and Genesys, we hold that this company cannot be treated as comparable. We, therefore, direct to exclude this case from the list of comparables. 17.1 On careful consideration of the matter, respectfully following the above decision of the coordinate Bench, we are also of the opinion that there is vast difference between the functions of the above company and that of assessee. This company as such, cannot be treated as comparable on FAR analysis. We therefore, direct the Assessing Officer/TPO to exclude this company. x x x x x x Same view has also been expressed in the other decisions also. Ld. DR has not brough ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e year under consideration. The learned Authorized Representative for the assessee pointed out that for the year under consideration i.e. assessment year 2010-11, the Tribunal in various other cases have held that Accentia Technologies Ltd. was not comparable to entities engaged in ITES activities since even during the year under consideration, the said entity had extraordinary events. In this regard, reliance was placed on following decisions:- a. Techbooks International Pvt. Ltd. Vs. DCIT (ITA No.240/Del/2015) b. Xchanging Technology Services India Pvt. Td. Vs. DCIT (ITA No.1222/Del/2015 c. Amba Research (India) Pvt. Ltd. Vs. DCIT (ITA No.286/Bang.2015 d. Cognizant Technologies Services Pvt. Ltd. Vs. DCIT (ITA No.459/Hyd/2015 13. Under the transfer pricing provisions, while benchmarking the international transaction entered into by the assessee with its associate enterprises, an endeavour is to determine the arm s length price of said transactions and for that purpose, comparison is made to the margins of unrelated parties, which are functionally similar to the assessee. While benchmarking the international transaction, an endeavour is to be mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to justify exclusion of the said concern from the list of comparables. In particularly, it has been pointed out that for the very same assessment year, the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. vs. ITO, (2013) 38 taxmann.com 55 (Bang.) has excluded the said concern from the list of comparables in a similar situation following the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited vs. DCIT, (2013) 32 taxmann.com 21 (Hyd.). 15. We have considered the submissions of the Ld. Representative for the assessee and also the stand of the Revenue as emerging from the order of the TPO. In our view, the ratio laid down by the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited (supra) and by the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. (supra) is squarely applicable to the present case also. The aforesaid Benches of the Tribunal found that during the year under consideration there were extraordinary events that took place in the said concern which warranted exclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the correct segment in the present case. We find that in the case of Aptara Technologies vs. ACIT (supra) the co-ordinate Bench has directed the Assessing Officer to work out the margins of relevant segment of Jeevan Softech Ltd and thereafter determine the average margins of the comparables. The relevant extract of the directions of the Tribunal are re-produced as under: 26. Another concern which was selected by the TPO was Jeevan Softech Ltd. The learned Authorized Representative for the assessee before us pointed out that the TPO has erred in working of the margins of said concern by adopting sales at ₹ 1.41 crores, which admittedly is revenue from BPO operations. However, the TPO has failed to consider ERP segment revenue which is also classified in the audited financial statement of Jeevan Softech Ltd. as being from ITES segment and if the segmental margins of ITES segment are taken up, which includes total sales/income of ₹ 1,74,43,276/-. The margin of the said concern worked out to 8.04% as against 39.38% applied by the Assessing Officer in the order passed under section 154 of the Act. In this regard, the earned Authorized Representative for the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing exclusion of functionally comparable company on the basis of turnover. The ld.DR referred to exclusion of Eclerx Services Ltd by DRP from the final list of comparables by applying turnover filter. The assessee in its additional ground no.3 has assailed the findings of AO/DRP in not rejecting Eclerx Services Ltd. on account of functional difference. We find that the co-ordinate Bench of the Tribunal in assessee s appeal for AY 2009-10(supra) has considered the issue relating to inclusion/exclusion of Eclerx Services Ltd. in the final list of comparables. The Tribunal vide order dated 30.03.2016 directed to exclude the said company from the final set of comparables on account of functional disparity. The relevant extract of findings of Tribunal are as under: 20. The next concern which the assessee wants to be excluded from final set of comparables is Eclerx Services Ltd., which was engaged in the business of KPO services and hence not functionally similar. We have in the paras hereinabove already held that the concern Crossdomain Solutions Pvt. Ltd. was engaged in the business of KPO services, was not functionally similar. Following the same parity of reasoning, where Ecle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee had an option to claim the marginal relief of 5% with reference to the arithmetical mean, irrespective of the range of actual deviation between the margin disclosed by the assessee and the average mean margin. After the amendment, this option is not available to the assessee. This marginal relief partake the character of standard deduction. After the amendment this standard deduction is not available to the assessee. The ground no.8 is remitted back to the Assessing Officer to grant the benefit of +/-5% without granting standard deduction. Accordingly, ground no.8 raised in the grounds of appeal by the assessee is allowed for statistical purposes. 16. The ground no.1, 2, 11, 12 of the appeal and additional ground of appeal no.4 are general in nature and hence, require no adjudication. 17. The ld.AR has not made any submissions in respect of ground no.3, 4 and 9 of the appeal. Since, the ld.AR has not pressed these grounds of appeal, accordingly the same are dismissed as not pressed. 18. In ground no.10 of the appeal, the assessee has assailed initiation of penalty proceedings u/s 271(1)(c) of the Act. The said ground being pre-mature is liable to be dismissed, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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