TMI Blog2019 (4) TMI 56X X X X Extracts X X X X X X X X Extracts X X X X ..... bility from year to year and such a concern cannot be picked up as being functionally similar because of abnormal profitability trend. Accordingly, we direct the Assessing Officer / TPO to exclude Informed Technologies Ltd. from final list of comparables. Claim of risk adjustment out of margins of comparables - HELD THAT:- The issue of allowability of risk adjustment stands settled by various decisions of different Benches of Tribunal and applying the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment @ 20% to the margins of comparables and compute the transfer pricing adjustment, if any, in the hands of assessee accordingly. The Assessing Officer / TPO shall afford reasonable opportunity of hearing to the assessee before finally computing arm’s length price of international transactions in line with our directions in the paras hereinabove. In the final analysis, we summarize our decision i.e. concerns Eclerx Services Ltd., Accentia Technologies Ltd. and Informed Technologies Ltd. are to be excluded from final list of comparables; the PLI of margins of Jeevan Softech Ltd. need to be re- computed and further risk adjustment is to be allowed @ 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench in the case of Mersk Technologies Limited, has held that ITES services cannot be further bifurcated as BPO and KPO services for the purposes of comparability analysis. 2. On the facts and in the circumstances of the case, the Ld Commissioner of Income-tax (Appeal) was erred in holding the safe harbour rules has also bifurcated KPO and BPO Services and accordingly Eclerx Services Limited is not a comparable company. The safe harbour rules are framed by the CBDT vide circular dtd. 18-9-2013 and they cannot be applied in the present case involving A.Y. 2010-11. 3. For these and such other grounds as may be urged at the time of hearing, the order of the learned CIT(A) may be vacated and that of Assessing officer be restored. 5. First, we shall take up the appeal of assessee, wherein the assessee is aggrieved by an upward adjustment made of ₹ 68,38,278/- in ITES segment. 6. Briefly, in the facts of the case, the assessee had furnished return of income declaring total income of ₹ 4,01,65,040/-. The assessee was engaged in the business of manufacturing and export of machine made woolen/Nylon carpets. During the year under consideration, the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive for the assessee that turnover of assessee was about ₹ 5.23 crores and Infosys BPO Ltd. had high turnover and its exclusion is not challenged, but is only in appeal against exclusion of Eclerx Services Ltd., which was KPO company. The learned Authorized Representative for the assessee also pointed out that tax effect in the appeal filed by Revenue was below the limits prescribed by CBDT. 9. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 10. We have heard the rival contentions and perused the record. The segment in which the addition has been made in the hands of assessee is the ITES segment. The assessee was engaged in carpet designing and its planning and estimation of cost, wherein the designs were part of data base of Brintons Ltd., UK. The assessee company goes to data base and selects the designing and suggests the same. For benchmarking its international transactions, it had selected TNMM method as most appropriate method and had applied OP/OC as PLI and worked out its margins at 11.72%. In order to benchmark the said transactions, the assessee had initially selected 15 concerns bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. being engaged in the business of KPO services, was not comparable to the assessee who was engaged in business of BPO services. Applying the said proposition to the facts of present case, we uphold the order of CIT(A) in this regard and dismiss the grounds of appeal raised by Revenue. In any case, the tax effect in appeal filed by Revenue is below the limits prescribed by CBDT and hence, appeal of Revenue is also not maintainable on this ground. 13. Now, coming to appeal of assessee, wherein the assessee has first claimed that Accentia Technologies Ltd. cannot be selected in the final list of comparables as during the year under consideration, there was an extraordinary event of amalgamation. The learned Authorized Representative for the assessee has pointed out that though the CIT(A) says that there is no such amalgamation but his finding is totally incorrect. In this regard, reliance was placed on the ratio laid down by Pune Bench of Tribunal in Dover India (P.) Ltd. Vs. DCIT (2017) 88 taxmann.com 115 (Pune-Trib.), wherein for assessment year 2010-11 itself, the said concern Accentia Technologies Ltd. was excluded being high end KPO service provider. Further, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted out that the assessee had selected sales/turnover filter of 1-50 crores i.e. any concerns having a turnover exceeding ₹ 50 crores were excluded. Thirdly, it was pointed out that the activities of the said concern were not comparable to the activities of the assessee. 14. The TPO has noted the aforesaid objections of the assessee in para 18.1 of his order and has rejected the same by merely noticing that 75% of the revenue/income of the said concern is from ITES and therefore it is to be considered as a comparable. Before us, the Ld. Representative for the assessee has reiterated the submissions put-forth before the TPO in order to justify exclusion of the said concern from the list of comparables. In particularly, it has been pointed out that for the very same assessment year, the Bangalore Bench of the Tribunal in the case of Symphony Marketing Solutions India Pvt. Ltd. vs. ITO, (2013) 38 taxmann.com 55 (Bang.) has excluded the said concern from the list of comparables in a similar situation following the decision of the Hyderabad Bench of the Tribunal in the case of Capital IQ Information Systems (India) Private Limited vs. DCIT, (2013) 32 taxmann.com 21 (Hyd.). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on segmental details. 16. We find that similar issue of computation of PLI of the said concern arose before the Tribunal in DCIT Vs. BNY Mellon International Operations (India) (P.) Ltd. (supra) and the Tribunal directed as under:- 14. The next plea raised by the assessee is incorrect computation of PLI of Jeevan Scientific Technology Ltd., which was earlier known as Jeevan Softech Ltd. The said concern was picked up as comparable and there is no dispute about applying margins. The only dispute which is raised before us is the computation of PLI of said concern, wherein the segmental details were referred. However, the TPO while considering the margins of said concern had only considered BPO operations, where the sales were considered at only ₹ 1,41,10,000/- which was the revenue from BPO operations and had not considered ERP segment revenue from where it was classified as being from ITES segment. 15. Similar issue of computation of PLI of said concern Jeevan Softech Ltd. arose before the Tribunal in the case of Aptara Technologies Pvt. Ltd. Vs. ACIT (supra) for the instant assessment year and it was held as under:- 26. Another concern which was selected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue arising in the present appeal before us is similar to the issue before the Tribunal and following the same parity of reasoning, we direct the Assessing Officer / TPO to work out the correct PLI of said concern Jeevan Softech Ltd. and then determine the average margins of comparables in order to compute arm s length price of international transactions. 18. The last concern which needs to be excluded in the hands of assessee is Informed Technologies Ltd. 19. We find that the Tribunal in Aptara Technologies (P.) Ltd. Vs. ACIT (2016) 72 taxmann.com 352 (Pune-Trib.) had considered the issue of exclusion of Informed Technologies Ltd. on the ground that it was showing abnormal profitability trend. The Tribunal vide paras 21 to 25 had observed as under:- 21. Another aspect raised by the learned Authorized Representative for the assessee with regard to Informed Technologies Ltd. was that the said concern was showing abnormal profitability trend. The learned Authorized Representative for the assessee pointed out that Pune Bench of Tribunal in Cummins Turbo Technologies Ltd., UK Vs. DDIT (Int. Tax) in ITA Nos.161 269/PN/2013, relating to assessment years 2007-08 2008-09, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctionally similar because of abnormal profitability trend. In this regard, we find that Pune Bench of Tribunal in case of Cummins Turbo Technologies Ltd., UK Vs. DDIT (Int. Tax,) (supra) had also held that Informed Technologies Ltd., because of its abnormal profitability trend, is to be excluded from the final list of comparables. Accordingly, we hold so. 20. The year under appeal before us is assessment year 2010-11 and the assessee has been showing different profitability from year to year and such a concern cannot be picked up as being functionally similar because of abnormal profitability trend. Accordingly, we direct the Assessing Officer / TPO to exclude Informed Technologies Ltd. from final list of comparables. 21. The last issue which is raised is the claim of risk adjustment out of margins of comparables. The Assessing Officer/TPO has allowed the aforesaid risk adjustment @ 2% in the hands of assessee. However, the assessee claims that it be allowed the said benefit in line with the ratio laid down by Pune Bench of Tribunal in Starent Networks (India) (P.) Ltd. Vs. ACIT (2018) 90 taxmann.com 367 (Pune-Trib.). 22. The Tribunal in paras 34 and 35 of the said ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% and the benefit can be allowed if the adjustment is within such range and hence, no adjustment is to be made in case it is not more than 5% from the arm s length price. We hold so. 20. The issue arising before us is similar and following the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment and re-work the margins of comparables, in turn, relying on the ratio laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. (supra) and compute the TP adjustment, if any, in the hands of assessee. The ground of objection No.2.2 is thus, allowed. 23. The issue of allowability of risk adjustment stands settled by various decisions of different Benches of Tribunal and applying the same parity of reasoning, we direct the Assessing Officer to allow risk adjustment @ 20% to the margins of comparables and compute the transfer pricing adjustment, if any, in the hands of assessee accordingly. The Assessing Officer / TPO shall afford reasonable opportunity of hearing to the assessee before finally computing arm s length price of international transactions in line with our directions in the paras hereinabove. However, in the final analy ..... X X X X Extracts X X X X X X X X Extracts X X X X
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