TMI Blog2018 (1) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings.”. Thus resorted this issue back to the file of the TPO/AO with the direction to include the aforesaid comparable, if from the available data on record, the results for financial year can reasonably be extrapolated. Inclusion of amount pertaining to ESOPs twice in the operating cost base of the assessee - Held that:- . In the present case, it appears that the directions given by the ld. DRP has not been appreciated by the TPO in right perspective. It also appears that the TPO without appreciating the documentary evidences furnished by the assessee made this addition in the cost base taken by him. We, therefore, by considering the totality of the facts, set aside this issue back to the file of the TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Treatment of the foreign exchange fluctuation gain/loss as a non-operating item while computing the operating margin of the assessee and of the comparables companies - Held that:- Hon’ble Supreme Court in the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l High Court of Delhi; 1.6. excluding certain comparables considered by the Appellant in its TP documentation/ fresh search on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 1.7 rejecting/ not including certain companies as comparable, which are otherwise functionally similar, merely on the ground that they follow accounting year other than financial year; 1.8. not appropriately considering the functions, assets and risk profile of the companies used for comparison with the Appellant, thereby including in the final comparable set certain companies with completely different functional profile; 1.9. committing errors in the computation of the operating profit margins of the Appellant and of the comparables selected for benchmarking the international transaction; 1.10. introducing companies in the final comparable set that signify high element of risk as opposed to the Appellant who is a captive service provider bearing limited risk and also not accepting the risk adjustment carried out by the Appellant even though the Ld. TPO had proposed to grant the same ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii. CG VAK Software Exports Ltd. (Seg.) -14.62 iii. CAT Technologies -4.41 iv. CTIL Ltd. 10.50 v. Cigniti Technologies Ltd. 8.02 vi. Evoke Technologies 12.81 vii. Helios Matheson Information Technology Ltd. 12.41 viii. Infomile Technologies Ltd. 5.08 ix. Larsen and Toubro Infotech Ltd. 23.65 x. Prism Informatics Ltd. 12.77 xi. RS Software (India) Ltd. 16.39 xii. Thinksoft Global Ltd. 12.74 xiii. Mindtree India Ltd. 16.16 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7. The TPO proposed an adjustment of ₹ 29,14,20,630 in his order dated 24.10.2016. Thereafter, the AO passed the draft assessment order. Against the draft assessment order passed by the AO, the assessee raised objections before the ld. DRP and submitted that the TPO rejected the comparable M/s R Systems International Ltd. on a frivolous ground that the financial year of the company ended in December 2011 and by doing so he had not followed the judicial precedence that a functionally comparable company cannot be rejected merely because it had a different financial year, especially when the audited quarterly financials of the company were available. The assessee also asked for the exclusion of M/s Infosys Technologies Ltd. and M/s Larsen Toubro Infotech Ltd. on account of high turnover, intangibles, different business modules, significant branding etc. The ld. DRP directed to exclude the above said comparables on account of difference in FAR. The assessee also sought exclusion of M/s Persistent Systems Ltd., M/s Sasken Communication Technologies Ltd., M/s Zylog systems Ltd. However, the ld. DRP after considering the FAR of the comparables was of the view that there was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arable to the Assessee's it should be included in the comparables set. In relation to different financial ending filter, the Assessee refers to its contention against the application of the said filler raised in the Form 35A (Page 51-60 of form 35A). The TPO has pointed out significant functional differences. panel agrees with the same, Assessee could not bring out facts correctly to counter the TPO findings. It also fails a valid filter adopted by the TPO. Hence action of the TPO is upheld. 8. Thereafter, the TPO by considering the directions of the ld. DRP worked out the adjustment at ₹ 22,52,63,184/- vide order dated 25.05.2017 and on the same date the AO passed the assessment order by making an addition of ₹ 22,52,63,184/- on account of arm s length price of the international transaction. 9. Now the assessee is in appeal. The ld. Counsel for the assessee submitted that the quarterly financial data in respect of the comparables was available. Therefore, the TPO/AO should have made the proper adjustment and considered the comparable, namely, M/s SR Systems Ltd. The reliance was placed on the judgment of Hon ble Delhi High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the grievance of the assessee relates to the inclusion of the amount of ₹ 3,33,10,161/- pertaining to ESOPs twice in the operating cost base of the assessee. 14. This issue was agitated by the assessee before the ld. DRP by stating that certain expenses were considered twice, thus, rendering the results spurious. It was stated that the TPO had erroneously included an amount of ₹ 3,33,10,161/- pertaining to ESOP twice in the operating cost base of the assessee and due to this reason, the cost computed by the TPO is coming to ₹ 3,49,42,05,612/- which was more than the amount appearing in the financials at ₹ 3,46,08,95,451/-. After considering the submissions of the assessee, the ld. DRP directed the TPO to examine the case and, if there was double impact of the ESOPs value, the same should have been corrected. However, it appears that the said direction of the ld. DRP was not complied by the TPO and the AO passed the impugned order without making any correction in the adjustment proposed by the TPO. 15. Now the assessee is in appeal. The ld. Counsel for the assessee drew our attention towards page no. 318 of the assessee s paper book which is the copy of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, by considering the totality of the facts, set aside this issue back to the file of the TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 18. The next issue vide Ground No. 1.3 relates to the treatment of the foreign exchange fluctuation gain/loss as a non-operating item while computing the operating margin of the assessee and of the comparables companies. 19. As regards to the above issue, the ld. Counsel for the assessee submitted that it is now covered against the revenue and in favour of the assessee by the judgment of the Hon ble Jurisdictional High Court in the case of Pr. CIT, Delhi-I Vs Agilis Information Technologies International (I) Pvt. Ltd. in ITA No. 907/2015, order dated 08.02.2016. A reference was made to page nos. 1774 1775 of the assessee s compilation which is the copy of the said order. The reliance was also placed on the judgment of the Hon ble Jurisdictional High Court in the case of Pr. CIT, Delhi-1 Vs Ameriprise India Pvt. Ltd. (copy of the said order was furnished which is placed at page nos. 1772 1773) and of the Hon ble Apex Court in the case of CIT Vs Woodw ..... 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