TMI Blog2019 (1) TMI 1326X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee is allowed for statistical purposes. - ITA No.388/PUN/2017 - - - Dated:- 21-1-2019 - Shri Anil Chaturvedi, AM And Shri Partha Sarathi Chaudhury, JM For the Assessee : Shri Ketan Ved For the Revenue : Smt. Nandita Kanchan ORDER PER PARTHA SARATHI CHAUDHURY, JM : This appeal preferred by assessee emanates from the order of the Dy. CIT (IT)-1, Pune passed u/s. 143(3) r.w.s.144 r.w.s.92CA of the Income Tax Act, 1961 (hereinafter referred to as the Act ) as per following grounds of appeal: 1. Transfer pricing adjustment of ₹ 2,38,36,922/- 1.1 The learned Assessing Officer pursuant to the directions of Hon'ble DRP erred in law and on the facts and in circumstances of the case in making an adjustment amounting to ₹ 23,836,992/- to the value of international transactions entered into by the Appellant with its associated enterprises in respect of provision of IT enabled and marketing support services. 2. Not considering write back of provision for gratuity, provision for leave entitlement and foreign exchange gain to be an operating income while calculating the PLI of the assessee 2.1 The learned Assessing Officer e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricing study for determining the arm's length price of international transaction pertaining to IT enabled and market support services, though the Assessee complies with the proviso to Rule 10B (4) of the Income Tax Rules, 1962. 8. Non-granting of risk adjustment 8.1 The learned Assessing Officer pursuant to the directions of learned DRP erred in law and on the facts and in circumstances of the case in not granting and rejecting the market risk adjustment submitted by the Appellant by comparing fullfledged risk bearing entities with the appellant s captive operatives. The Appellant craves leave to add, alter, vary, omit, substantiate or amend the above grounds of appeal, at any time before or at, the time of hearing of the appeal, so as to enable the Hon'ble Income Tax Appellate Tribunal to decide this appeal according to law. 2. The brief facts in this case are that : M/s. Cummins Turbo Technologies Ltd., the assessee filed electronically its return of income for assessment year 2012-13 on 30.11.2012 declaring total income of ₹ 19,73,320/- under the normal provision of the Act and ₹ 1,53,92,013/- under the provisions of section 115JB of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not followed by the TPO till date. 7. We have perused the case record and heard the rival contentions and going through the Para 2.2 of the assessment order where reference was made to the DRP, it is absolutely clear that directions have been given for verification to the TPO. The Ld. AR stated that said directions were not followed to which Ld. DR has also conceded. Accordingly, for the interest of justice, we direct the TPO on this ground to follow the directions given by DRP and pass a suitable order after verification of relevant facts. Hence, the ground No. 2.1 is, thus, allowed for statistical purposes. 8. With regard to ground No. 2.2, the grievance is that the Assessing Officer and DRP considered the foreign exchange gain as non-operating income while computing the PLI of the assessee. 9. At the time of hearing, the Ld. AR appraised the Bench that the issue is covered by the following three decisions of Pune bench of the Tribunal. i) In the case of Approva Systems Pvt. Ltd. Vs. CIT, ITA No.1788/PN/2013. ii) In the case of Wika Instruments India Pvt. Ltd. Vs. DCIT, ITA No.760/PN/2015 iii) In the case of Digital Group Infotech Pvt. Ltd. Vs. DCIT, ITA No.475 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TPO and DRP have stated that foreign exchange fluctuation gain/loss as non operating income, however, following the decision of the Co-ordinate Bench in the aforesaid cases, where it is clearly held that the Assessing Officer to consider foreign exchange fluctuation gain as part of the operating income of the assessee. Respectfully, following the decisions, we allow this ground of appeal. Hence, ground No. 2.2 raised by assessee in appeal is allowed. 11. The Ld. AR of the assessee further submitted that if ground No.6 of appeal is decided in favour of the assessee then other remaining grounds become academic in nature. In view of the matter, we are going on hearing of ground No. 6 which relates inclusion of functionally non-comparable companies. The Assessing Officer in pursuant to the directions of DRP selected following functionally non comparable companies as comparable in the final set of comparable companies: i) Excel Info ways Limited. ii) Ninestar Information Technologies Limited. iii) Universal Print Systems Limited. 12. The Ld. AR of the assessee appraised the Bench to page No. 130 of the paper book in the order of Pune Bench of the Tribunal in ITA No.2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the said transaction by using TNMM method after selecting seven external comparable companies having mean margin of 12.12%. The TPO during TP proceedings, however, applied additional filters for selection of comparable companies and retained two concerns which were selected by the assessee i.e. Jindal Intellicom Pvt. Ltd. and e4e Healthcare Services Ltd. However, the TPO introduced additional four more concerns and the final set of comparables were drawn up as under:- Sr. No. Name of Comparable Company OP/TC As per TPO 1 Jindal Intellicom Ltd. 2.80% 2 Microgenetic Systems Ltd. 19.61% 3 e4e Healthcare Services Ltd. 19.48% 4 Ninestars Information Technologies Ltd. 19.57% 5 Excel Infoways Limited 41.48% 6 Universal Print Systems Limited 59.40% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0-11, order dated 31.01.2017 and Qlogic India Pvt. Ltd. Vs. DCIT in ITA No.227/PUN/2014, relating to assessment year 2009-10, order dated 21.10.2014. Another factor which has been pointed out by the learned Authorized Representative for the assessee is low employee cost ratio of the concern Excel Infoways Ltd. 18. In the ITES segment, it is an admitted position that the same is oriented involving high employee cost. In case filter of employee cost is applied and concern is found to have low employee cost on sales ratio, then such a concern fails the filter and cannot be selected as comparable. Such is the proposition laid down by the Mumbai Bench of Tribunal in Goldman Sachs Services (P.) Ltd. Vs. ITO (supra). Applying the said proposition to the facts of present case, we find that the assessee had shown employees cost of 47.75%, whereas the learned Authorized Representative for the assessee points out that the employee cost ratio of Excel Infoways Ltd. and also of Universal Print Systems Ltd. was less than 25% and hence, such concern could not be selected as comparable. 19. The learned Authorized Representative for the assessee fairly pointed out that low employee c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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