TMI Blog2016 (2) TMI 1162X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and in law the Ld. CIT(A) has erred in deleting the addition of ₹ 18,77,813/- made by the Assessing Officer on account of transfer pricing adjustment. 3. At the same time, appellant M/s. Tech Book Electronics Services Pvt. Ltd. (hereinafter referred to as the assessee ) by filing the present appeal sought to set aside the impugned order dated 18.12.2012 passed by Ld. Ld. CIT(A) XX, New Delhi qua the Assessment Year 2008-09 on the grounds inter alia that: 1. That on facts and in law, the learned Commissioner of Income tax Appeals XX ( CITA) and the learned Addl Commissioner of Income tax, Transfer Pricing Officer - 11(3) and the learned Deputy Commissioner of Income tax, Circle 16, New Delhi ( AO ) have erred in using single year data of companies without considering the fact that the same was not available to the Respondent at the time of complying with the transfer pricing documentation requirements and disregarding the Respondent's claim for use of multiple year data for computing the arm's length price. 2. That on facts and in law, the TPO/AO has cherry picked comparables and gave no cognizance to business profile of the Respond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational transaction, an adjustment of ₹ 18,77,813/- for provisions of I T enabled services has been made to the income of the assessee for difference between ALP and price charged by the assessee from its AEs. 9. It is noticed that the comparable companies having worked out by adopted weighted average for the current year and the immediately preceding two years and thereafter, the arithmetic mean of weight average has been taken for computation of ALP. PLI and comparable has been arrived at by considering the data for the Assessment Years 2005-06, 2006-07 and 2007-08. 10. TPO after examining 15 comparables selected by the assessee as well as submissions made before him, found comparables in 8 companies out of 15 comparables taken by the assessee and finally selected 15 comparables tabulated at page 16 of his order by highlighting their OP/TC percentage. For ready reference, 15 finally selected comparables are tabulated as under: S. No. Name of the company OP/TC % 1 Aditya Bila Minacs Worldwide Ltd. 0.55 2 BNR Udyog Ltd. (Seg) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently, Assessing Officer made this addition by virtue of order dated 21.02.2012 u/s 143(3) of the Act. 13. The assessee carried the matter before Ld. Ld. CIT(A) by filing the appeal who has deleted the addition by excluding BNR Udyog Ltd. (Seg), Datamatics Financial Ltd. (BPO division), Genesis International Corporation Ltd., Maple E Solutions Ltd., Mould Tek Technologies Ltd. and Triton Corp. Ltd. 14. On the other hand, assessee by filing the cross appeal, sought exclusion of eClerx Services Ltd. from the list of final comparables and sought inclusion of Cosmic Global Ltd. and C G Glack Software. 15. We have heard both the Ld. Authorized Representatives, gone through the material placed on record in the light of facts and circumstances of the case and orders passed by lower authorities. 16. Undisputedly, though the assessee as well as TPO selected TNMM as most appropriate method for computation of TP adjustment of international transaction at assessee s own ALP with its OP/TC @ 15.50%. The revenue by filing the appeal challenged deletion of addition of ₹ 18,77,813/- made by Ld. CIT(A) on account of TPA by excluding BNR Udyog Ltd. (Seg), Datamatics Financial L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e @ 100% of all costs and expenses incurred in the provisions of such services plus an appropriate amount of mark up on the utilized capacity cost. The work carried out by the assessee is electronic publishing and pre-press service including print ready files to printers and electronic deliverables for online publishing by converting data from one file to another format and storing of such data for the ultimate use as required by the customers. In the backdrop of the aforesaid functional profile of the assessee, ground raised by the Revenue as to the deletion of addition of ₹ 18,77,813/- on account of TPA by excluding BNR Udyog Ltd. (Seg), Datamatics Financial Ltd. (BPO division), Genesis International Corporation Ltd., Maple E Solutions Ltd., Mould Tek Technologies Ltd. and Triton Corp. Ltd. are taken for discussion as under: A. BNR Udyog Ltd. (seg): This comparable has been chosen by TPO but excluded by Ld. CIT(A) from the list of comparables to determine the Transfer Pricing Adjustment (TPA) of international transaction. The Revenue challenged exclusion of this comparable on the ground that this comparable has been excluded by Ld. CIT(A) arbitrarily and on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company as comparable company on the grounds inter-alia that this is a functionally different company; that its segmental information is not available and this company had shown 450% profits in its P L account meaning thereby, it is highly profitable business; that assessee has not been provided with any opportunity to cross examine the evidence taken on record; that there is no material to reach out at the conclusion that as to how 34.8% profit has been computed by the TPO. Ld. CIT(A) by accepting the contention of the assessee, excluded this comparable company on account of functional disparity as well as on ground of non availability of the audited segmental information. From the perusal of material available on record relied upon by the TPO in arriving at the decision to include the Datamatix Financial Services as comparable company, it is apparently clear that the TPO has chosen this comparable on the basis of assumptions and presumptions by ignoring the fact that the comparable company has shown 450% profit and falls in the category of highly profitable business and as such, is liable to be excluded from the list of comparable company. TPO in his analysis for finally cho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ists, photogrammetrists, civil engineers, field survey personnel and rocket scientists and related computer based services and it has been making substantial investment in research and development. Even from the perusal of annual report of the comparable company for the year 2007-08 brought out on record by Ld. A.R., it is proved that skill and expertise of the employees of the comparable company i.e. Genesys is diametrically opposite to the skill and expertise of employees of the assessee company as the assessee company is primarily having graduates vis- -vis the most skilled workforce with the comparable company. Annual report of Genesys for the Assessment Year 2007-0-8 describes it s workforce as under: Talent eco system within Genesys include urban planners, cartographers, remote sensing scientists, photogrammetrists, civil engineers, field survey personnel and even rocket scientists, giving the company a unique and formidable set of skills in all kinds of land base work . However, on the other hand, assessee company is into the business of electronic publishing services like data conversion and copying in different formats which are classified as I T enabled Service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this company as comparable by making following observations: this company can also be used a comparable. The services that it is providing are very much I T Enabled services. The annual report of the comparable was analyzed and seen that it has service income of 95%, exports earning of 95.05% and RPT of 20.45%. As the company passes all the filter, it will be used as a comparable. The assessee challenged this comparable on the grounds inter alia that the company is engaged in providing high end engineering consultancy services; that this company has also exceptional year of operation due to the acquisition of Crossroads Detailing Inc. USA and is earning super normal profits. But the TPO stated to have applied broader criteria while accepting or rejecting the company as comparable so far as functional comparability of the company is concerned. Ld. CIT(A) has excluded this company from the list of comparables by making following observations: This company as two segments, ITES and Plastic division. ITES is having 100% exemption whereas on the profits of plastic division the company' has to pay tax. It is not uncommon to see such financial results where the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, consequently findings returned by Ld. CIT(A) qua this company are hereby affirmed. E. Triton Corp. Ltd. This is assessee s own comparable and the TPO has accepted it without assigning any reasons. However, Ld. CIT(A) excluded this comparable on the ground that the TPO without having any segment profitability considered that the comparable company sold I T Peripherals of ₹ 61.578 crores and other at ₹ 4.03 crores of the total sale of ₹ 145.76 crores. Since the comparable company does not qualify for service income filter applied by the TPO, the Ld. CIT(A) has rightly considered the same as uncomparable company vis- -vis assessee company. However apart from functional dissimilarity, this company is also liable to be excluded on the ground that this company is a fraud company as has been held by ITAT Delhi Bench B New Delhi in case entitled ITO Vs CRM Services India (P) Ltd in I.T.A.No. 4068/Del/2009, operative part of which for ready reference, is reproduced as under: 17.2 In regard to Maple E Solutions Triton Corporation, it is Rastogi family mentioned in the report of the TPO that the first named company is carrying on the business of rendering d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice income @ 94.76% export earnings at 83.95% and RPT @ 11.84% and stated to have passed all the filters. The assessee sought to exclude this company from the list of comparables on the ground of amalgamation and on the ground that this is a company earning super normal profits @ 66.25%. But Ld. CIT(A) retained this company as comparable as the ground of functional difference pointed out by the assessee is not significant enough to reject this company as comparable. Ld.A.R. relied upon the order passed by ITAT Delhi Bench I in I.T.A.No.5207/Del/2013 order dated 10.06.2015, in case cited as Xchanging Technology Services India Pvt. Ltd. Vs ACIT and referred para 17 18, which is reproduced for ready reference as under: 17. In view of above, we are inclined to demolish contention of the Ld. DR that this company is includable as a suitable comparable because it was included by the assessee in its list placed before the TPO in the TP study. We are of the considered view that merely because the assessee company included this company in the list of comparables the functionally different company cannot be accepted at suitable comparables. When the assessee is claiming that the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal if the assessee proves that the same was wrongly included. 18. While, we considered the functionally comparability issue of Cosmic Global services with the present assessee company then we find ourselves view taken by the Tribunal in its order in the case of United Health Group Information Services Pvt. Ltd. Vs. ACIT (Supra) wherein for the same A Y 2008-09 it was held that the major part of income from translation charges is amounting to ₹ 5.59 crores out of total revenues of ₹ 5.86 crore, which is totally dissimilar to that of the assessee of that case. In the present case, the DRP/AO has only disputed the International transaction of the present assessee only ITES segment whereas as per annual report of Cosmic Global Ltd. at page 578 of assessee paper book Vol.-II, we clearly note that the Revenue from ITES segment is very low which creates a great functional difference from present assessee as the present assessee is not indulged into translation segmental business. Hence, we are inclined to accept the contention of the assessee that the Cosmic Global Ltd. is functionally dissimilar to the present assessee and Cosmic Global Ltd. is not a suitable co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... outsourcing and management services along with a multitude of data aggregation, mining and maintenance services. A look at the functional profile of this company from its Annual report, it can be seen that it is nowhere close to the assessee's instant segment of 'manual claim processing services '. 10.3. It is further relevant to note that this company acquired UK based Igenica and Travel Solutions Ltd. on 27.7.2007 and the financial results of that company are also included in its. Recently, the Delhi Bench of the Tribunal in Toluna India Pvt. Ltd. Vs ACIT (ITA No.5645/Del/2013) vide its order dated 26.8.2014 has held that the mergers/de-mergers in a company make such year as unfit for comparison. In reaching this conclusion, the Delhi Bench followed an order passed by the Mumbai Bench of the Tribunal in Petro Araldite (P) Ltd. Vs DCIT (2013) 154 TTJ (Mum.) 176 in which it has been held that a company cannot be considered as comparable because of exceptional financial results due to merger/de-merger etc. In view of the foregoing discussion, we are of the considered opinion that this company cannot be included in the list of comparables. The assessee succeeds. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the considered view that to arrive at logical conclusion, this issue is required to be restored back to the TPO to decide the comparability of this company afresh by providing opportunity of being heard to the parties. (iii) C G Vok Software: This is assessee s own comparable, rejected by the TPO by making following observations: The AR of the comparables shows that income in the ITES segment is ₹ 93 lakhs during the year. As the filter of turnover more than ₹ 1 crore has been considered appropriate, this will not be used as a comparable. Assessee sought inclusion of this comparable for TP adjustment on the ground that he company has earned total revenue of Rs.,6,05,05,301/- and under the relevant year, it meets ₹ 1 crore turnover filter adopted by the TPO. Ld. CIT(A) without having any material on record, upheld the findings of TPO that this company has turnover of ₹ 93,00,000/- from ITES segment. Even otherwise, this company has already been included in the list of comparables for T P adjustment in assessee s own case in I.T.A.No. 240/Del/2015 dated 06.07.2015. In the aforesaid case (supra) the Tribunal has held that this company cann ..... X X X X Extracts X X X X X X X X Extracts X X X X
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