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2019 (7) TMI 655

..... 09, we find that in [2018 (11) TMI 264 - ITAT PUNE] the issue has been deliberated upon but is not being reproduced for the sake of brevity. Following the same parity of reasoning, we remit this issue back to the file of AO to examine the facts and decide the issue of applicability of APAs to assessee’s case for the year under consideration in principle. TP adjustment for rendering of supply base development and other back office services under the Business Support Services (BSS) - HELD THAT:- Objection of authorities below that the assessee itself had included the said concern as comparable in its TP report, but during TP proceedings objected to its inclusion. We find that the issue now stands covered by the dictate of Jurisdictional High Court in CIT Vs. Tata Power Solar Systems Limited [2016 (12) TMI 1600 - BOMBAY HIGH COURT] where it has been held that a concern can be excluded though it was originally selected by assessee as comparable, where the assessee establishes that it was not functionally comparable. Hence, we direct the Assessing Officer to exclude Saket Projects Limited from the final list of comparables for BSS segment of assessee. TSR Darashaw Limited stands c .....

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..... were no changes in functionality during the year when compared with earlier year. In such circumstances, we find no merit in the order of TPO in excluding CG VAK from the final list of comparables. Hence, we direct him to include the same for benchmarking transactions in ITES segment. Additional companies were identified based on updated data on the basis of revised filters applied by TPO and the same should have been included in final list of comparables - HELD THAT:- The perusal of order of TPO / DRP reflects that Agrima Consultants International Ltd. was proposed to be included in final list of comparables. The objection of assessee before both the authorities was on that ground of supernormal profitability. But this contention of assessee was not accepted by any of the authorities. However, before us, AR for the assessee has pointed out that the financials of Agrima Consultants International Ltd. which were available in public domain covers period only upto 31.12.2008. Since the said concern was unlisted company, data for the three months was not available in public domain. We find that the Hon’ble Bombay High Court in CIT Vs. PTC Software (I) (P) Ltd.[ 2018 (4) TMI 1002 .....

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..... assessment year 2008-09. Accordingly, we hold that risk adjustment as directed in the case of Sony India Pvt. Ltd. (supra) should be allowed on operating margins of comparables in the provision of Application Engineering Services segment. - ITA No.377/PUN/2014 And ITA No.378/PUN/2014 - 24-6-2019 - MS. SUSHMA CHOWLA, JM AND SHRI D. KARUNAKARA RAO, AM For The Assessee : Shri R.R. Vora & Rajendra Agiwal For The Revenue : Shri S.B. Prasad, CIT ORDER PER SUSHMA CHOWLA, JM: Both the appeals filed by connected assessee are against separate orders of DCIT, Circle 1(2), Pune, both dated 01.04.2014 relating to assessment year 2009-10 passed under section 143(3) r.w.s. 144C(1) of the Income-tax Act, 1961 (in short the Act ). 2. Both the appeals of connected assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. We are first referring to the facts and issues in ITA No.377/PUN/2014. 3. The assessee in ITA No.377/PUN/2014 has raised the following grounds of appeal:- On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO have: Ground 1 General ground challeng .....

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..... Limited as a comparable company. Ground 9 Certain additional, companies can also be considered as comparable based on updated data Erred in non-considering certain additional companies identified by the assessee based on updated data specifically where the learned AO/TPO have used updated data. Ground 10 Inclusion of companies having extra ordinary margins Erred in including companies with extra ordinary margins in the set of comparable companies. Other grounds of objections Ground 11 Non consideration of contemporaneous data Erred in conducting an analysis based on information subsequently available for determining arm's length price which was not available at the lime of complying with the transfer pricing regulations. Ground 12 Denial of adjustment for risk differences Erred in denying adjustment on account of differences in the functional and risk profile of comparable companies vis-a-via the assessee. Ground 13 Levy of interest under section 234B of the Act Erred levying interest under section 234B of the act on account of unanticipated additions made to the total income on account of Transfer Pricing adjustment. Ground 14 Initiating penalty proceedings under section 271( .....

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..... 6. The ground of appeal No.1 raised by assessee is general, hence does not need any adjudication. 7. The issue raised in grounds of appeal No.2, 3 and additional ground of appeal No.17 is against international transaction pertaining to management and administrative cost allocation by associated enterprise. 8. The learned Authorized Representative for the assessee pointed out that the issue stands settled by APAs made under section 92CC of the Act in the case of assessee itself in later years. The learned Authorized Representative for the assessee further pointed out that similar issue arose before the Tribunal in assessee s own case in assessment year 2008-09 and the said issue has been set aside to the file of Assessing Officer to apply legal propositions mentioned therein and decide the issue in the light of APAs. It was also mentioned by the learned Authorized Representative for the assessee that the Delhi Bench of Tribunal in Ranbaxy Laboratories Ltd. Vs. ACIT in ITA No.196/Del/2013 for assessment year 2008-09 has also laid down similar proposition. 9. The learned Departmental Representative for the Revenue fairly pointed out that the issue stands covered by order of Tribunal. .....

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..... ded Saket Projects Limited on the ground of functionality difference and also because of fluctuating margins. The learned Authorized Representative for the assessee fairly pointed out that the assessee had initially selected this concern but on a later stage, the assessee wanted exclusion of the said concern. In this regard, he placed reliance on the decision of the Hon ble Bombay High Court in CIT Vs. Tata Power Solar Systems Limited in ITA No.1120/2014, judgment dated 16.12.2016, wherein it has been held that comparables which were originally selected by assessee can be excluded in final analysis. 14. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below. 15. We have heard the rival contentions and perused the record. The assessee is aggrieved by inclusion of Saket Projects Limited in final set of comparables in BSS segment. We find that similar issue of functional difference in activities of assessee and Saket Projects Limited arose before the Tribunal in assessee s own case in assessment year 2008-09 and the Tribunal had excluded the same on functionality difference as it was engaged in organizing events. T .....

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..... accepted and final list was drawn. 18. The learned Authorized Representative for the assessee pointed out that the said concern TSR Darashaw Limited had developed its own software for payroll processing and income was earned through the said software. So, it was engaged in sale of software and also was providing services on account of patented software and hence, was not functionally comparable. In this regard, it was also pointed out that the Tribunal in assessment year 2008-09 had directed exclusion of TSR Darashaw Limited. 19. The issue of exclusion of TSR Darashaw Limited stands covered by order of Tribunal in assessment year 2008-09, wherein the said concern was excluded being not functionally comparable to the assessee. Following the same parity of reasoning, we direct that the said concern be excluded. We find no merit in the observations of TPO that a concern which was selected by assessee in its TP study in earlier years cannot be excluded in this year, since the finding of TPO has been reversed by Tribunal in assessment year 2008-09. 20. The learned Authorized Representative for the assessee fairly pointed out that in case Saket Projects Limited and TSR Darashaw Limited a .....

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..... ement consultancy services, for which no segmental information was available, hence the said concern could not be selected as comparable. The other issue which was raised in the hands of said concern was supernormal margins earned by the said concern. 25. The learned Departmental Representative for the Revenue on the other hand, placed reliance on the orders of authorities below and pointed out that the said concern was engaged in similar functions as performed by assessee. 26. We have perused the report of the company on website, which is placed at pages 2196 to 2198 of Paper Book-5, wherein it is reported that Vardaan Projects Ltd. was rendering services of financial structuring, financial analysis, financial arrangements, etc. and was also engaged in asset valuation for compliance with IFRS and others. In such case, where the segmental details were not available, then the said company could not be held to be functionally comparable to the assessee, though the entire operating revenue earned by assessee was reported under the head Income from Engineering Consultancy Services . Accordingly, we hold that Vardaan Projects Ltd. needs to be excluded from final list of comparables in t .....

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..... udicated first. Under the additional ground of appeal No.16, the assessee is aggrieved by inclusion of Agrima Consultants International Ltd. on the ground that it has different year end and the information with regard to balance three months was not available. In this regard, reliance was placed on the decision of Hon ble Bombay High Court in CIT Vs. PTC Software (I) (P.) Ltd. (2016) 75 taxmann.com 31 (Bom). 32. The learned Departmental Representative for the Revenue pointed out that before the TPO, the assessee was aggrieved by inclusion of Agrima Consultants International Ltd. on the ground of supernormal margins and this plea of information not available was not raised before any of the authorities. 33. We have heard the rival contentions and perused the record. The perusal of order of TPO / DRP reflects that Agrima Consultants International Ltd. was proposed to be included in final list of comparables. The objection of assessee before both the authorities was on that ground of supernormal profitability. But this contention of assessee was not accepted by any of the authorities. However, before us, the learned Authorized Representative for the assessee has pointed out that the f .....

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..... at the Hon ble Bombay High Court while deciding the issue in the case of PTC Software (I) Pvt. Ltd. (supra) had held that the concern Cosmic Global Ltd. had outsourced its services to vendors and such concern could not be held to be functionally comparable. Following the same parity of reasoning, we hold that Cosmic Global Ltd. is to be excluded from final list of comparables. We are not addressing the issue of supernormal margins as we have directed exclusion of Cosmic Global Ltd. otherwise. 38. The next concern which the assessee wants to be excluded is ICRA Online Ltd. The learned Authorized Representative for the assessee in respect of said concern pointed out that it was KPO company and filed outsource segment of said concern. It was an exceptional year of performance because of addition of new process. Our attention was drawn to Directors report at page 2177 of Paper Book-5 in this regard. It was also pointed out that the said concern was showing fluctuating profits. 39. On perusal of record and after hearing both the learned Authorized Representatives, we find that as in other cases, objection of assessee before the authorities below was supernormal profits earned by the sai .....

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..... lly comparable. We have in paras above also directed inclusion of CG VAK engaged in medical transcription field. We have applied the ratio of Hon ble Bombay High Court in the case of CIT Vs. Tata Power Solar Systems Limited (supra) to hold that concern originally selected by assessee may not be part of final list. But in case of Mahindra Consulting Engineers Ltd., the assessee has failed to establish how it is not functionally comparable. 43. Now, coming to next objection raised by assessee that the said concern was following different accounting method i.e. AS-7 i.e. where the revenue is recognized on estimate basis, based on completion of project; on the other hand, the assessee had recognized its revenue on mercantile system of accounting. This aspect needs verification at the end of Assessing Officer. Accordingly, we direct the Assessing Officer to verify the same and in case the assessee and the concern Mahindra Consulting Engineers Ltd. are following different accounting methods, then the said concern needs to be rejected as comparable; in turn, we rely on the ratio laid down in Ciena India (P.) Ltd. Vs. ITO (2015) 59 taxmann.com 92 (Delhi-Trib.). 44. The learned Authorized R .....

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