TMI Blog2016 (1) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... comparable has retained M/s. V M F Soft Tech Ltd. which is having profit margin of 35.70%. On the one hand the TPO has rejected loss making companies and on the other hand he has retained a comparable having super profits. The TPO should either have rejected both the comparables or included both the extreme comparable in the list of comparables. Since, we have directed the Assessing Officer to include the loss making companies in the list of comparables, M/s. V M F Soft Tech Ltd. can be retained in the same list, accordingly, this ground of appeal of the assessee is rejected. Inclusion of Compucom Software Ltd. in the final list of comparables - TPO applied RPT filter of 25% to reject companies having substantial related party transactions - Held that:- The Tribunal in the subsequent assessment year 2007-08 has excluded Compucom Software Ltd. from the list of comparables as it is having related party transactions in excess of 25%. We are of the considered view that the authorities below have erred in not considering the details furnished by the assessee with respect to the related party transactions of Compucom Software Ltd. furnished by the assessee. We deem it appropriate to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2005-06 on 31-10-2005 declaring total income of ₹ 34,38,660/-. The case of the assessee was selected for scrutiny and accordingly notice u/s. 143(2) was issued to the assessee on 08-08-2007. Since, the assessee had undertaken international transactions with its AE, the case of the assessee was referred to Transfer Pricing Officer (TPO)-I, Pune on 10-12-2007. The assessee adopted Transactional Net Margin Method (TNMM) as the most appropriate method for bench marking its international transactions amounting to ₹ 17,53,83,201/-. The Operating Profit/Operating Cost of the assessee for the relevant period was computed at 13.67%. The assessee had selected 20 companies as comparables and arrived at weighted mean of comparable companies at 10.71%. The TPO was not satisfied with the TP study and the comparables selected by the assessee. The TPO accepted only 8 companies selected by assessee as comparables and added 3 more companies as comparables to arrive at the set of 11 comparables. After granting capital working adjustment the arithmetical mean of final set of comparables was worked out at 24.31%. The TPO vide order dated 30-05-2008 made adjustment of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Tech Ltd. which is having abnormally high profit margin of 35.70%. The Tribunal in the case of Bindview India Pvt. Ltd. Vs. Dy. CIT in ITA No. 1501/PN/2011 for the assessment year 2005-06 decided on 26-06-2014 has excluded the company from the list of comparables only on the ground that if loss making company is excluded, then the super profit making company should also be excluded. 4.2 The ld. AR contended that the TPO has included Compucom Software Ltd. in the list of comparables. The TPO has applied a Related Party Transactions (RPT) filter of 25% to reject companies having substantial related party transactions. In the case of Compucom Software Ltd. the related party transactions are more than 25%. The Commissioner of Income Tax (Appeals) has erred in upholding the findings of the TPO on the ground that since the annual report of Compucom Software Ltd. was not filed by the assessee, the claim of the assessee could not be verified. The ld. AR submitted that the assessee had furnished the extract of the annual report for the relevant year before the Commissioner of Income Tax (Appeals) vide letter dated 19- 11-2009 to substantiate its argument that the RPT of the said compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Cummins Turbo Technologies Limited vs. DDIT in ITA No.118/PN/2011 for A.Y. 2006-07 held that some of the comparables for the purpose of PLI adopted by the assessee was showing loss, but burden was on TPO to prove where those companies were consistently loss making companies. Moreover, except unsupported reasoning, no data was brought on record by the TPO for excluding comparables selected by the assessee in transfer pricing study. Therefore, the Tribunal held that no justification to adjustment made u/s.92CA(3) of the Act and directed to delete the same. 5.4 Further, we find in the case of Goldman Sachs (India) Securities Pvt. Ltd. vs. ACIT, which has been decided by ITAT, Mumbai K Bench, wherein the TPO rejected Capital Trust as comparable because of two out of last three years taken into consideration. Capital Trust was in the red and not because the nature of business had any variance with that of the assessee. The Tribunal looked into the business segment of Capital Trust and found that in the foreign consultancy segment with which the Bench was concerned in the year 2004-05, it had operative profit / operative cost at 27.25%. Since the nature of services rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd issue raised by the assessee is with regard to cherry picking of high margin companies. The TPO in the final list of comparable has retained M/s. V M F Soft Tech Ltd. which is having profit margin of 35.70%. On the one hand the TPO has rejected loss making companies and on the other hand he has retained a comparable having super profits. The TPO should either have rejected both the comparables or included both the extreme comparable in the list of comparables. Since, we have directed the Assessing Officer to include the loss making companies in the list of comparables, M/s. V M F Soft Tech Ltd. can be retained in the same list, accordingly, this ground of appeal of the assessee is rejected. 8. The next issue on which the assessee has assailed the findings of Commissioner of Income Tax (Appeals) is with respect to inclusion of Compucom Software Ltd. in the final list of comparables. The TPO applied RPT filter of 25% to reject companies having substantial related party transactions. The assessee has placed on record the extract of annual report of the said company for the financial year 2004-05 to show that the Compucom Software Ltd. is having related party transactions of more ..... X X X X Extracts X X X X X X X X Extracts X X X X
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