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TMI Blog2016 (1) TMI 1402X X X X Extracts X X X X X X X X Extracts X X X X ..... I, Pune ('Ld. TPO') and the Ld. AO and the Learned Commissioner of Incometax (Appeals) ['Ld. CIT(A)'], erred in : b. in confirming rejection of comparable companies selected in the TP study furnished by the Appellant merely because companies had incurred losses; e. Cherry picking the high margin companies and rejecting the low margin companies and inconsistently applying the benchmarking criteria; f. Applying the benchmarking criteria inconsistently, as the companies selected by the Ld. TPO are liable to be rejected suing the very same criteria used by the Ld. TPO for rejecting other comparables;" Except the above three grounds, the remaining grounds in the appeal are dismissed as not pressed. 3. The facts of the case as emanating from the records are: The assessee company is engaged in the business of providing software development services to its AE Sungard Trading Systems, USA. The assessee is a branch of Sungard Trading Systems, which is one of the 72 subsidiaries of Sungard Data Systems Inc., a global leader in integrated IT and e-processing solutions for the financial services industry. The assessee filed its return of income for the assessment year 2005-06 on 31-10- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing companies, the Tribunal in the case of M/s. Bobst India Private Limited Vs. Dy. CIT in ITA No. 1380/PN/2010 for the assessment year 2006-07 decided on 09-10-2014 and in the case of Goldman Sachs (India) Securities Private Limited Vs. Asstt. Commissioner of Income Tax (OSD) in ITA No. 7724/Mum/2011 for the assessment year 2007-08 decided on 13-01-2013, has held that a company making persistent loss for past 3 years is not a good comparable. In the present case, the three companies excluded by TPO on the ground of loss making entities, have losses only in one year i.e. 2004-05. Thus, in view of the aforesaid decisions, the exclusion of aforesaid 3 companies from the list of comparables on the ground of loss making entities is unjustified. The ld. AR submitted that all the 3 companies should be included in the list of comparables. 4.1 The ld. AR further submitted that the TPO has adopted cherry picking in selecting high margin companies as comparables and rejecting the low margin companies. The TPO on the one hand has rejected the loss making companies and on the other hand has retained in the list of comparable M/s. V M F Soft Tech Ltd. which is having abnormally high profit mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany is having related party transactions greater than 25%. The ld. DR prayed for dismissing the appeal of the assessee and upholding the order of the Commissioner of Income Tax (Appeals). 6. We have heard the submissions made by the representatives of rival sides and have perused the orders of the authorities below. We have also considered the decisions on which the ld. AR of the assessee has placed reliance. The first issue raised by the assessee before us is the rejection of comparables by the TPO merely on the ground that the comparable companies have incurred losses. The ld. AR has submitted that Astro Bio Systems Limited, Maars Software International Limited and Megasoft Ltd. have incurred losses only in one year. The loss making company shall be considered as bad comparable only if it is having consistent loss for the three years. The reliance has been placed on the decision of Co-ordinate Bench of the Tribunal in the case of M/s. Bobst India Private Limited Vs. Dy. CIT (supra). The relevant extract of the findings of the Co-ordinate Bench on this issue are as under: "5.3 We also find that ITAT, Pune 'A' Bench in the case of Cummins Turbo Technologies Limited vs. DDIT in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omparable companies for arriving at ALP in relation to international transactions pertaining to EOU operations. The Assessing Officer is directed accordingly." The Revenue has not controverted the fact that the aforesaid three comparables have incurred losses only in the one year. Respectfully following the decision of Co-ordinate Bench, we hold that the Commissioner of Income Tax (Appeals) has erred in upholding the findings of the TPO in rejecting the Astro Bio Systems Limited, Maars Software International Limited and Megasoft Ltd. only on the ground that the said companies have incurred losses in the comparable year or in the year under consideration. We are of the considered view that the aforesaid three companies should not have been excluded from the list of comparables for arriving at ALP in relation to international transactions. We remit this issue back to the file of Assessing Officer to include the above mentioned three companies in the list of comparable entities and thereafter work out the weighted average mean of the comparables. This ground of appeal of the assessee is accordingly accepted. 7. The second issue raised by the assessee is with regard to cherry picking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered as also the payments made for services received meaning thereby that sales as well as expenses having a component of RPTs are included, whereas the denominator comprised of only the sales component. Ostensibly, the aforesaid formula would give a distorted picture of the ratio of RPTs to the total transactions. If total expenses incurred by the assessee by way of payments to associated enterprises is divided by the total expenses incurred, the ratio of RPTs to the total transactions exceed 25%, as per the working made by the assessee. In view of the aforesaid incorrect approach of the TPO in order to calculate the level of RPTs, Compucon Software Ltd. has been wrongly included as a comparable. Moreover, the assessee has also referred to a decision of the Pune Bench of the Tribunal in the case of Bindview India (P.) Ltd. vs. DCIT, (2013) 34 taxmann.com 164 (Pune-Trib.) relating to the assessment year 2006-07 wherein the RPTs in the case of Compucon Software Ltd. have been accepted as being in excess of 25% of the total transactions. On this basis also, we find that the plea of the assessee to exclude Compucon Software Ltd. from the list of comparables has been wrongly negated b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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