TMI Blog2018 (3) TMI 940X X X X Extracts X X X X X X X X Extracts X X X X ..... turnover basis and the same cannot be rejected. Accordingly, we reverse the order of Assessing Officer / TPO in applying the margins at entity level and direct to accept margins shown in segmental profitability of AE segment by the assessee. The case of assessee is that in case the segmental profitability of AE segment is applied, then the margins shown by the assessee are within +/- 5% range of mean margins of comparables as worked out by the TPO and no adjustment needs to be made on account of international transactions undertaken by the assessee. Accordingly, we hold so. Comparability analysis - Rejection of concern on turnover basis - Held that:- Though the ground of appeal raised by the Revenue is vague in this regard but the perusal of order of DRP shows that it had directed exclusion of Infosys Technologies Ltd. on turnover basis. We find that the issue is covered by the ratio laid down by the Hon’ble Bombay High Court in CIT Vs. Pentair Water India Pvt. Ltd. (2016 (5) TMI 137 - BOMBAY HIGH COURT ), wherein it has been held that the concern Infosys Technologies Ltd. having high turnover and having intangibles is not comparable to the concern providing software services to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstances of the case and in law, the Ld. AO following the directions of the Ld. DRP has erred in disregarding the segmental information pertaining to the transactions with associated enterprise ('AE business') and transactions with third parties ('Non-AE business') and consequently erred in considering the operating margin of the Assessee at an entity level while determining the arm's length price of the international transactions. The Assessee prays that the Ld. AO be directed to consider the segmental information pertaining to AE business while determining the arm's length price of international transactions, Ground No. 5 : On the facts and circumstances of the case and in law, the Ld. AO following the directions of the Ld. DRP has erred in considering certain functionally uncomparable companies/segments as comparables without following a structured search process and thereby resorting to cherry picking of comparables. The Assessee prays that the Ld. AO be directed to determine the arm's length price of the impugned international transactions with reference to the comparables selected by the Assessee in the transfer pricing repor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the principle of proportionality. The Assessee prays that the transfer pricing adjustment, if any, should be computed on a proportionate basis. Ground No.12: On the facts and in the circumstances of the case and in law, the Ld. AO has erred in computing the transfer pricing adjustment while passing the final assessing order. The Assessee prays that correct amount of transfer pricing adjustment, if any, should be computed. All the above grounds are independent and without prejudice to one another. 4. The Revenue in ITA No.335/PUN/2015 has raised the following ground of appeal:- As there is no relationship between Turnover and profitability, whether DRP was correct in deleting the comparable without taking into account FAR analysis of the comparable company and assessee company. 5. First, we take up the appeal of assessee. The learned Authorized Representative for the assessee at the outset did not press grounds of appeal No.1, 2 and 3, hence the same are dismissed as not pressed. He further pointed out that the issue raised vide ground of appeal No.4 is against transfer pricing adjustment made in the hands of assessee by disregarding segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85%. The TPO further observed that the auditor in the audit report had not given segmental account as provided by the assessee with regard to its work with associated enterprises and non-associated enterprises. The basis of cost allocation between associated enterprises and non-associated enterprises by the assessee was based on hours in respect of man power cost; and at actuals in respect of administration and other overheads. The depreciation was based on hours and the financial cost on the basis of exchange gains and losses in the ratio of exports with associated enterprises and non associated enterprises. The TPO was of the view that where the assessee has not followed any scientific method for allocation of expenses, the same cannot be accepted. The first allocation of expenses on man hour basis, as per the TPO, was not correct, because it did not take into account the personnel who remained idle during the year. The assessee had failed to provide complete details thereof. The TPO observed that even if it is presumed that such data was available with the assessee, the reliability of data was not verifiable. Secondly, while allocating the expenses on man hour basis, the TPO was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee is in appeal against the order of Assessing Officer / DRP. However, before us it has raised several grounds of appeal regarding inclusion / exclusion of comparables but had restricted the arguments only to the issue of application of segmental details pertaining to transactions with associated enterprises as against the order of Assessing Officer / TPO / DRP in considering the operating margins of assessee at entity level. The Revenue is in appeal against directions of the DRP in excluding Infosys Technologies Ltd. 9. The learned Authorized Representative for the assessee while referring to the background of the case pointed out that Fortuna Technologies Pvt. Ltd. was acquired by Tieto in 2007. The learned Authorized Representative for the assessee pointed out that except for financial year 2007-08, in all the other years starting from financial years 2008-09 to 2012-13, the assessee had shown sales both in associated enterprise business and non-associated enterprise business. He further pointed out that in all the years both preceding and succeeding, there was no reference to the TPO and no adjustment was made by the TPO in respect of same transactions i.e. sales to as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... placed on the decision of the Pune Bench of Tribunal in Visteon Engineering Center (India) Pvt. Ltd. Vs. DCIT in ITA No.331/PN/2014, relating to assessment year 2009-10, order dated 11.04.2016 and Mumbai Bench of Tribunal in DCIT Vs. Technimont ICB Ltd. in ITA No.1820/Mum/2015 along with CO No.68/Mum/2015, relating to assessment year 2010-11, order dated14.09.2016. The learned Authorized Representative for the assessee also filed on record the intimation received under section 143(1) of the Act for assessment year 2009-10, wherein the assessee had undertaken similar transactions on account of associated enterprise business and non-associated enterprise business and no TP adjustment was made. He further pointed out that in assessment year 2011-12, no reference was made to the TPO under section 92CA(1) of the Act. Similarly, in assessment year 2014-15, no TP adjustment was made. He referred to the copy of assessment order passed under section 143(3) of the Act in this regard. In respect of assessment years 2012-13 and 2013-14, the learned Authorized Representative for the assessee submitted that though reference was made to the TPO, however, no adjustment was made. In this regard, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to provide the services to third parties i.e. non-associated enterprises. However, since it had surplus available workforce and other resources, services were also provided to associated enterprises and the revenue from AE segment comprised 43% of total revenue. The assessee claims that the operating margins of AE segment had to be compared with the mean margins of comparables finally selected in the case of assessee. It may be put on record that the assessee has raised various grounds of appeal against selection and exclusion of comparables by the TPO and applying the margins of said finally selected companies to benchmark the international transactions of assessee. However, during the course of hearing before us, the learned Authorized Representative for the assessee fairly pointed out that in case the margins of AE segment are considered and not the margins at entity level, then mean margins of comparables and the assessee would be +/- 5% range and no transfer pricing adjustment had to be made in this regard. However, the same was qualified by the learned Authorized Representative for the assessee that for this proposition to be applied, the appeal of Revenue of exclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rence also. We have gone through the assessment orders and orders passed by the TPO in this regard starting from assessment year 2009-10 to 2014-15 which are placed on record and there is no adjustment was made in this regard. Accordingly, we find no merit in the order of Assessing Officer / TPO for the instant assessment year in rejecting the accepted method of applying segmental details of AE segment for benchmarking the international transactions with associated enterprises. 14. Another issue which is raised by the Revenue is against rejection of concern on turnover basis. Though the ground of appeal raised by the Revenue is vague in this regard but the perusal of order of DRP shows that it had directed exclusion of Infosys Technologies Ltd. on turnover basis. We find that the issue is covered by the ratio laid down by the Hon ble Bombay High Court in CIT Vs. Pentair Water India Pvt. Ltd. (supra), wherein it has been held that the concern Infosys Technologies Ltd. having high turnover and having intangibles is not comparable to the concern providing software services to its associated enterprises. Applying the said ratio to the facts of present case, we uphold the order of DR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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