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TMI Blog2016 (6) TMI 1340X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. 3.1. The Ld. AO/ Ld. TPO/ Hon'ble DRP erred on the facts and in the circumstances of the case and in law in framing the order u/s 92CA of the Income Tax Act, 1961 ('the Act') on findings which are erroneous in law, contrary to the facts and based on mere conjectures and surmises. 3.2. The Ld. AO/ Ld. TPO/ Hon'ble DRP failed to appreciate the submissions made/ contentions raised by the Assessee and further erred in making observations, assertions and inferences in the order, which were both factually incorrect as well as legally untenable. 4. The Ld. AO/ Ld. TPO/ Hon'ble DRP erred in enhancing the income of the Assessee by INR 13,147,114 holding that the international transactions of the Assessee pertaining to provision of application engineered software development and related services do not satisfy the arm's length principle envisaged under the Act and in doing so, have grossly erred in: 4.1. disregarding the Arm's Length Price ('ALP') as determined by the Assessee in the Transfer Pricing ('TP') documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules') as wel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Counsel for the assessee argued ground No. 4.6 which relates to the addition of Rs. 1,31,47,140/- on account of arm's length price adjustment by including certain companies in the final set of comparables and excluding certain companies claimed to be comparable to the assessee. 5. Facts of the case in brief are that the assesse was engaged in providing application engineering, software development and related services for ovation control systems as a part of the work and filed the revised return of income declaring an income of Rs. 2,83,86,373/- on 26.3.2013. Assessee entered into international transactions for which reference was made to the transfer pricing officer (TPO) to determine the arms length price on such transactions u/s 92CA(3) of the Income Tax Act 1961 (hereinafter referred 'the Act'). The assessee had taken the operating profit to total cost (OP/TC) ratio as the profit level indicator (PLI) by applying Transactional Net Margin Method (TNMN) and arrived at the PLI of 14.09% whereas the average PLI of the comparables was arrived at 15.56% as per the analysis in the TP document. It was claimed by the assessee that the price charged in the international transactions was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e TPO. Thereafter, the assessee filed objections before the Ld. DRP who did not find merit in the objections of the assessee except that the working capital adjustment is to be done and the TPO to recheck whether the comparable M/s. Mitcon Consultancy & Engg. Services Ltd clears the service income filter. On the directions of the Ld. DRP the AO passed the assessment order. 9. Being aggrieved the assessee is in appeal. Ld. Counsel for the assessee submitted that M/s. Mohindra Consulting Engineers Ltd. selected by the TPO as comparable was discarded and directed to be removed by this bench of the ITAT in ITA No. 5343/Del/2012 for assessment year 2008-09 vide order dated 13th April, 2016 in assessee's own case. Copy of the said order was furnished which is placed on record. It was further submitted that M/s. Mitcon Consultancy and Engg. Services Ltd. is functionally dissimilar as it was engaged in undertaking diversified services and derived revenue from the following sources :- - Consultancy Assignments - Training programmes - Bio Technology Incubation Centre - Wind energy generation - Other income 10. It was further submitted that there was no segmental information avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee contended that this comparable company is functionally dissimilar, having significant related party transactions and relied upon order passed by Delhi Tribunal in case cited as Bechtel India (P.) Ltd. Vs. Addl.CIT - 146 ITD 733 (Delhi - Trib.). 21. The TPO, while selecting the Mahindra as a comparable company, has returned the following findings :-: "The assessee has objected to the use of this company as a comparable on account of being functionally different and submitted that consultancy services provided by this comparable company in multidisciplinary areas. In contrast, the services provided by the Assessee are in of an entirely different nature. Further, the Assessee has provided arguments on application of related party transaction filter to reject companies having controlled transactions in excess of 15% of revenue, the Assessee has submitted that during the FY 2007-08, Mahindra had transactions with its related parties to the extent of 15.51 % of the total revenue. Here again the objection of the assessee is mainly on verticals of the company. It has already been discussed earlier in this order. Therefore, this company can also be used as a comparable h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not controverted the proposition mooted out by the assessee as to the aforesaid decision of the coordinate Bench in Bechtel India (P.) Ltd. (supra)." 13. We, therefore, by respectfully following the aforesaid order direct the TPO not include M/s. Mohindra Consulting India Ltd. while working out the Arm's length price adjustment. As regard M/s. Mitcon Consultancy and Engg. Services Ltd. it appears that the Ld. DRP directed the TPO to recheck as to whether the said company cleared the service income filter. The relevant observations of the Ld. DRP are as under :- "The above extract from the AR of the Company and the ones done by the TPO shows that the assessee contention in respect of lack of functional comparability is wrong. However as regards the assessee claim that the company has failed the service income filter as revenue from service income of Rs. 287,017,235 forms 60.02% of the total revenue of Rs. 478,196,289 the panel directs the TPO to re-check whether it clears the service income filter." 14. In the present case, it appears that the said direction was not properly followed, we therefore direct the TPO to adjudicate the issue as to whether M/s. Mitcon Consultancy and ..... 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