TMI Blog2018 (1) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... d to allow premium on carelessness and callousness of the TPO and allow him a second chance to amend his errors. An erring officer does not deserve a new innings to continue unnecessary litigation. TP proceedings, like any other proceedings under the Act, have to be completed in a proper manner and the record should prove that, while making TP adjustment, the TPO had applied his mind to the facts and circumstances of the case. Posts of TPO. s were specifically created to determine the ALP of the IT. s. Considering the seriousness of the job the AO. s are not allowed to decide the value of IT. s. The scheme of the Act casts an added responsibility on the TPO. s to pass a reasoned, valid and proper order. In the case before us, we find that the TPO had committed several mistakes in the search proceedings and sending notices. So, we are of the opinion that it is not a fit case to be remanded. Profits eligible for deduction u/s. 10A - entitled to incremental deduction under section 10A - Held that:- We find that the assessee had filed a specific objection about not allowing incremental deduction, that the DRP did not decide the issue. Therefore, we are of the opinion that the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Franklin Templeton group companies in India, that the assessee had entered into two IT. s in to with its AE. s. He obserded that the assessee was earning a Markup of 10% and 15% (on cost)on back-office-support-services(BOSS)and SDC respectively, that TNMM was selected as the most appropriate method for benchmarking the IT. s, that it had used three years data to work out a weighted average for computing Profit Level Indicator (operating profit/cost)of the comparable companies, that the assessee had selected eight comparables with PLI of 10. 07%. The TPO held that using the data of three years was not as per the provisions of Act, that the companies selected by the assessee could not be treated as valid comparables. He rejected five comparables selected by it and accepted the remaining three, namely Ace Software Exports Ltd. , Allsec Technologies Ltd. (ATL)and Spanco Ltd. He added 10 new comparables and selected 13 comparables in the final list, namely-Ace Software Exports Ltd. (ASEL), Allsec Technologies Ltd. (ATL), Apex Knowledge Solutions Private Ltd. (AKSPL), Asit Mehta Financial Services Ltd. (AMFSL), Cosmic Global Ltd. -Seg. - (CGL), Datamatics Financial Services Ltd. -se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that 99. 78% of its total revenue was earned from call centres, that the functions, assets and risks were distinct and different from the functions assets and risks for providing data processing services, that the assessee was providing non-voice based services, that intangible assets consisted 21. 93% of the total fixed assets of Maple, that the assessee did not have any intangible asset. He relied upon about a dozen of cases where the Tribunal had held that Maple could not be taken as a valid comparable. With regard to GTL , the AR stated that it had export income from exports of goods and not of services, that it failed the export-filter applied by the TPO himself, that he had excluded certain comparable selected by the assessee on the very same ground i. e. export filter, that the information obtained by the TPO u/s. 133 (6) of the Act, for selecting GSL as a comparable, was never furnished to the assessee. He relied upon the cases where the Tribunal has rejected GTL as a valid comparable. About TTL , it was argued that it had 93. 58% of its total revenue from translation services, that the BPO and medical transcription services earned only 6. 42% of the total revenue, that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant to decide the BPO issue, that for comparing turnover 1/10or 10 time of the turn-over could be considered. He referred to cases of PCM Stresscom Overseas Ventures Ltd. (85taxmann 165)and Daikin Air-conditioning India Pvt. Ltd. (67 taxmann. com. 119)and stated that in absence of opportunity of being heard not given the matter should be restored back to the file of the AO. Referring to the order of Acusis Software India P. Ltd. (77taxman. com. 6), he contended that Maple was considered as a valid comparable, that in the year 2007-08 the assessee itself had considered it as a valid comparable. Relying upon the case of Allscripts India Pvt. Ltd. (37taxmann. com19), he argued that if it was to be excluded then comparables selected by assessee who were in the same business should also be excluded from the list of the comparables. He made a reference to the matter Akami Technologies India P. Ltd. (74 taxmann. com188), wherein the matters were set aside to the file of the AO. In the rejoinder, the AR stated that initially the AO had selected seventeen (17) companies as a result of search filters. (TPO order Pg. 9), that in the final list of comparable those 17 companies were not con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PB)reveal that it is engaged in software development, portfolio management services and investment activities, that segmental results are not available about the various activities carried out by it. It is also a fact that an extra ordinary event, amalgamation, had taken place(Pg. 384 and 388 of the PB) during the year under consideration. In the matter of American Express(India)Pvt. Ltd. (64 taxmann. com 280), the Tribunal has held that AMFL cannot be treated a valid comparable for the AY. 2006-07. We are reproducing the relevant portion of the order which reads as under: 7. 1 This company was initially included by the assessee in its list of comparables on weighted average basis. Thereafter, when the TPO required the assessee to furnish the profit rates of the companies selected by it with current year data alone, the assessee excluded this company. The TPO included it in the final set of comparables despite the assessee's objection that there was amalgamation of some other company in this company during the year under consideration and the audited financial accounts contain the figures relevant to the amalgamating company as well. The TPO was unconvinced with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, we hold that AMFL should be taken out of the final list of the valid comparables. Maple , as per the pages 863 and 1222 of the PB, is engaged in providing call centre services, that more than 90% of its revenue is arising from call center, that intangible assets constitute more than 20% of the total fixed assets of Maple. If we compare the FAR analysis of both the companies it is clear that the assessee was justified in arguing that Maple should be treated an invalid comparable. In the case of Stream International Services Pvt. Ltd. (31 taxmann. com 227) the Tribunal has held as under: 17. Third case against is that of Maple eSolutions Limited, whose inclusion has been assailed by the ld. AR. It is observed that the TPO excluded the case of Satyam Computers Services on the ground of Unreliability of data , although that case satisfied all the relevant criteria chosen by the TPO. The learned Counsel for the assessee contended that the case of Maple eSolutions Limited which was included by the TPO suffered from the same disability. It was argued that the reputation of Rastogi group, owning Maple eSolutions Limited was under serious indictment. Our attention wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 25% applied by the TPO. Pg. 1222f of the PB prove that GTL had three divisions namely(i)Insulator division (ii)Telcom division and (iii)BPO division, that it was manufacturing composite insulators and was also in the process of developing a wide range of insulators, that the Telcom division was providing cable joining kits, that it had earned 42. 83% of its total revenue from insulator division, that 44. 13% income earned by GTL was arising out of Telcom division. Considering these facts we hold that GTL should not have been included in the list of valid comparable. As far as TTL , as a comparable is concerned, it is found that during the year under considera - tion 93. 58% of its total revenue arose from translation services. Not only this unlike assessee it was outsourcing the translation work. We find that roughly half of its translation work(52. 54%) was done by the outsiders. On the other hand the assessee is doing work for its AE. s. In the case of Parexel International (India)Pvt. Ltd. (51 taxmann. com 332), for the AY. 2007-08, the Tribunal has excluded it from the final list of comparables. Considering the peculiar facts about TTL, we hold that it is a invalid compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atural justice. Consequently, the order of the TPO was set aside by the Hon ble Court and the AO was directed to rehear the basic issue raised by the assessee. In our opinion, the case does not help the cause of Revenue in any manner. Facts of the case under consideration are totally different from the facts of PCM Stresscon Overseas(supra). In the matter under appeal there is clear cut non application of mind on part of the TPO. In the matter of Daikin Air Conditioning(supra)the TPO had not provided any opportunity to the assessee for filing its objections. The Tribunal remanded back the matter for fresh adjudica -tion. In the case of Akamai Technologies India(supra), the Tribunal found that the TPO had collected information u/s. 133(6)and had not confronted the assessee with it before using against it. So, the issue was sent back. In the case under consideration, we find that the search process adopted by the TPO was faulty, that the assessee was not confronted with the information gathered u/s. 133(6)of the Act. Even on merits, we have held that 8 comparables approved by the DRP should not have been included in the final list. We would like to discuss the matter of All scr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the selection process, he could not show the process of 'qualitative screening' which resulted in selection of 20 comparables out of 463 comparables found in the preceding stage of selection process. When asked as to what was the objective criterion adopted in this narrowing down process, learned counsel did not have much to say. He, however, prayed that the matter be remitted to the file of the Assessing Officer so that assessee has a reasonable opportunity of explaining these issues, which, according to him, were not raised earlier. Learned Departmental Representative, on the other hand, submitted that there cannot be cherry picking in putting selected comparables to the rigorous test. He pointed out that learned counsel has fairly accepted that they have scrutinized only those comparables which they find to be against their interests. The very foundation of this exercise is not on the legally sustainable basis. The application of any test has to be on uniform and consistent basis. Learned departmental Representative also highlighted the fact that the process of narrowing down to 20 comparables by the assessee is not transparent, nor the assessee is able to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he TPO had committed several mistakes in the search proceedings and sending notices. So, we are of the opinion that it is not a fit case to be remanded. We again make it clear that our order is limited to present case only. It should not be considered a precedent for remitting/not remitting back the matters to the file of the departmental authorities. First Ground of appeal is decided in favour of the assessee. 3. Ground No. 2 is about disallowance of ₹ 23. 06 lakhs made u/s. 10A of the Act. During the assessment proceedings, the AO held that expenditure incurred by it towards software expenses was capital in nature. Though, he allowed depreciation on it. In short, the AO did not allow incremental deduction, to the extent of ₹ 23. 06 lakhs, while calculating the profits eligible for deduction u/s. 10A of the Act. The DRP, while dealing with the objections of the assessee, did not adjudicate the issue though it was specifically raised before it. 3.1. Before us, the AR referred to the case of Gem Plus Jewellery India Ltd. (330ITR175) and stated that assessee was entitled to incremental deduction under section 10A of the Act. The DR stated that matter could be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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