TMI Blog2016 (7) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies on the basis of other aspects such as functional dissimilarity etc., and in the absence of any finding of the ld. CIT(A) on these aspects, we do not consider it proper to examine and decide these aspects in the absence of any finding on these aspects. In our considered opinion, the matter should go back to the file of the ld. CIT(A) for his decision on these aspects. We hold accordingly and set aside the order of the ld. CIT(A) and restore back this issue to his file for fresh decision for exclusion of these companies which are objected to by the revenue in ground No. 3 in the light of various arguments of the assessee on the basis of functional dissimilarities etc. Cogent reasoning by CIT-A for rejecting the diminishing revenue filter used by the TPO and therefore, on this issue, we find no reason to interfere with the order of the ld. CIT(A). Even if the accounting year of the comparable is not financial year, but the accounting year of the comparable company is closing within six months’ time frame then such company can be considered as comparable - Held that:- If the assessee or TPO wants that such company should be considered as a comparable then the assessee/TP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices segment because of abnormal profits and losses margin, without giving reason how functions discharged, assets deployed and risks assumed on such companies were different from assessee company. 4. On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that the TPO was not justified in applying the employee cost filter and directed to include M/s Indus Networks Ltd. which was excluded in the software development services segment by using this filter. 5. On the facts and circumstances of the case the learned CIT(A) has erred in objecting the diminishing revenue filter used by the TPO to exclude companies that do not reflect the normal industry trend. 6. On the facts and in the circumstances of the case the learned CIT(A) failed to appreciate that the different year ending filter applied by the TPO is necessary to exclude companies which do not have the same or comparable financial cycle as the tested party. 7. On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that M/s. A vani Cimcon Technologies Ltd. cannot be taken as a comparable as the segmental details are not available. 8. On the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) erred in upholding the TPO's approach of ignoring the limited risk nature of the services provided by the respondent and in not providing an appropriate adjustment towards risk differential, even when the full-fledged entrepreneurial companies are selected as comparables. 6. That the ld. CIT(A) erred in upholding the learned TPO's approach of using the related party transactions (RPT) filter greater than 25% for exclusion of comparable instead of RPT filter 15% filter as applied y the respondent. 7. That the learned CIT(A) erred in upholding the TPO's approach of using the export sales 25% of revenues filter and the onsite revenue 75% filter for the exclusion of comparables. 8. Without prejudice, the learned CIT(A) erred in not rejecting companies which are not functionally comparable to the respondent in respect of its SWD segment and hence cannot be considered as comparables. 9. Without prejudice, the learned CIT(A) erred in not rejecting companies which are not functionally comparable to the respondent in respect of its ITeS segment and hence cannot be considered as comparables. 10. Without prejudice, the learned CIT(A) erred in not rejecting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profits and losses - filter. This issue has been decided by the ld. CIT(A) as per para -100 101 of his order and the same are reproduced hereunder; 100. It was argued that the TPO had considered certain comparable with abnormal profits and negative margins. The Delhi Bench of the Hon'ble ITAT had in the case of Sony India (P)Ltd., v DCIT (2008) 114 ITD 448(Del.) upheld the objection of assessee on inclusion of a comparable when distinctive differences like size and turnover materially affected performance or prices of products. It had been held in E-Gain Communication Pvt. Ltd ., (2008)-TIOL-282-ITAT-Pune) that there was no justification for considering oversized companies and the Commissioner (Appeals) was in error in considering turnover as the only relevant factor needed to be considered for a proper analysis. 101. I have considered the appellant's contention and am inclined to agree. Following the decisions cited above, I direct the AO to apply to exclude from the final set of comparables the following companies that had abnormally high profits or had incurred losses. This ground of appeal is partly allowed . 11. From the above paras of the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able companies on the basis of other aspects such as functional dissimilarity etc., and in the absence of any finding of the ld. CIT(A) on these aspects, we do not consider it proper to examine and decide these aspects in the absence of any finding on these aspects. In our considered opinion, the matter should go back to the file of the ld. CIT(A) for his decision on these aspects. We hold accordingly and set aside the order of the ld. CIT(A) and restore back this issue to his file for fresh decision for exclusion of these companies which are objected to by the revenue in ground No. 3 in the light of various arguments of the assessee on the basis of functional dissimilarities etc. The ld. CIT(A) should pass necessary order as per law and as per the above discussion after providing adequate opportunity of being heard to both sides. 12. Regarding ground No. 4, ld. DR of the revenue supported the order of the AO/TPO whereas the ld. AR of the assessee submitted that he has no objection even if this company is included as a comparable. Accordingly, this issue is decided in favour of the revenue and against the assessee and ground No. 4 of the revenue is allowed. 13. Regarding grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of current year's business, a mere change in financial year ending would make significant difference to companies that are functionally similar, operate in a similar business environment, and face the same business cycle. If the TPO had evidence that such a thing had happened in the case of a particular company, it was for him to point out what exact difference had the change of accounting year made to the financial results of that company and whether it would not be possible to restate or reconcile those financial results for a different accounting period without significant change in the net profit margin or any other parameters he considered relevant. 97. Since multinational companies operate in different geographical regions and different countries follow different accounting or financial years, functionally similar or even identical companies cannot be held to be incomparable only owing to differences in the date of ending of the financial year. Most business enterprises operate on the going concern concept which is fundamental to present day accounting, but the period concept used in accounting is just an artificial means to reckon the operating results of business op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able opportunity of being heard to both sides. Ground No. 6 is allowed for statistical purposes. 19. Regarding ground No. 7 of the revenue's appeal, ld. DR of the revenue placed reliance on the order of the AO/TPO whereas the ld. AR of the assessee supported the order of the ld. CIT(A). Regarding company M/s. Avani Cincom Technologies Ltd., he placed reliance on the Tribunal order rendered in the case of 3DPLM Software Solutions Pvt. Ltd ., in IT(TP)A No. 1303/Bang/2012 (AY: 2008-09). Copy available on pages 12 to 17 of case law compendium. 20. Regarding M/s. Celestial Biolabs Ltd., objection raised as per ground No. 8, it was submitted by the ld. AR of the assessee that exclusion of this company is justified on account of functional dissimilarity and in this regard, reliance was placed on the same Tribunal order rendered in the case of 3DPLM Software Solutions Pvt. Ltd .(Supra). 21. In respect of M/s. Kals Information Systems Ltd., exclusion of which is being disputed by the revenue as per ground No. 9, Learned AR of the assessee placed reliance on the same Tribunal order rendered in the case of 3DPLM Software Solutions Pvt. Ltd .(Supra). 22. Regarding M/s. Acce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y held to be functionally dissimilar as per the same Tribunal order rendered in the case of IGS Imaging Services (I) Pvt. Ltd., (Supra). Copy available on pages 163 to 165 of case law compendium. 26. We have considered the rival submissions. We find that in the case of IGS Imaging (I) Pvt. Ltd (Supra), the Tribunal has followed another Tribunal order rendered in the case of Symphony Marketing Solutions India Pvt. Ltd .,(Supra) and as per the relevant portion of that Tribunal order rendered in the case of Symphony Marketing Solutions India Pvt. Ltd.,(Supra) reproduced in the Tribunal order rendered in the case of IGS Imaging (I) Pvt. Ltd ., (Supra), it was held by the Tribunal that this company is providing services of KPO and therefore, this cannot be considered as comparable in the case of a company engaged in providing BPO services. 27. The ld. DR of the revenue could not point out as to why this Tribunal order is not applicable in the present case and therefore, respectfully following this Tribunal order, we decline to interfere with the order of the ld. CIT(A) on this issue. Accordingly, ground No. 11 of the revenue is also rejected. 28. In the result, the appeal of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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