TMI Blog2017 (11) TMI 1856X X X X Extracts X X X X X X X X Extracts X X X X ..... n is not comparable to the assessee and to be excluded from final list of comparables. Fortune Infotech Ltd - The assessee is operating in ITES segment, wherein the services are being provided to associated enterprises, whereas the concern Fortune Infotech Ltd. had its own unique web based software, through which it provides services to its customers. The said concern is not comparable to the entity engaged in ITES segment, has been deliberated upon by the Delhi Bench of Tribunal in Equant Solutions India Pvt. Ltd. Vs. DCIT [ 2016 (1) TMI 1260 - ITAT DELHI] and it has been held that the concern develops its own software for performing specialized services in medical transcription and patient record management and the same was held to be not functionally comparable to an entity engaged in ITES segment. We find merit in the claim of assessee that once the concern is functionally not comparable to the assessee, then the same cannot be included in final list of comparables. Excluding certain comparables in software segment - exclusion of Infosys Ltd. from final list of comparables, which is so directed by the DRP - HELD THAT:- We find that exclusion of said concern Infosys Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Transactional Net Margin Method ('TNMM') for benchmarking its international transactions pertaining to provision of ITES services to the AE, and thereby modifying the set of comparables. In doing so, the Ld DRP/AO specifically erred in: a) Including the companies which are not functionally comparable to the ITES services rendered by the appellant in final set of comparables on an adhoc basis, thereby resorting to cherry-picking of comparables; b) Rejecting companies functionally similar to that of the appellant's business operations of provision of ITES services from final set of comparables 3. The Ld. DRP/AO erred in not adjudicating the additional functionally comparable companies provided by the appellant to the Ld DRP. 4. The Ld. DRP/AO erred in considering the single year data for the comparables i.e. data for FY 2009-10 only and disregarding multiple year data which was considered by the appellant in accordance with the provisions of Rule 108(4) of the Income-tax Rule, 1962 ( Rules ). 5. The Ld. DRP / AO erred in not allowing an adjustment for the difference between the level of risk borne/assets employed by the comparables and the appellant as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt) and Thirdware Solutions Ltd. It is prayed that the abovementioned companies being functionally non-comparable to the Respondent ought to be excluded in the final set of comparable companies in the Software Services segment. 1.2 On the facts and in the circumstances of the case and in law the Ld DRP has erred in upholding the action of the TPO / AO in excluding a comparable company namely Akshay Software Technologies Ltd. by holding that a loss making company cannot be compared to the Respondent which is operating on a cost-plus' business model. It is prayed that the comparable company namely Akshay Software Technologies Ltd. not being a persistent loss maker ought to be included in the final set of comparable companies in the Software Services segment. 1.3 Your Respondent craves leave to add to alter, amend, vary, omit or substitute the aforesaid ground of cross objections or add a new ground or grounds of cross objections at any time before or at the time of hearing of the appeal as they may be advised. 6. First, we take up the appeal of assessee, wherein the assessee is aggrieved by the order of Dispute Resolution Panel (DRP) / Assessing Officer in making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fresh comparables and found both the transactions not to be at arm's length price. In the segment of provision of software services, the TPO proposed by way of adjustment of ₹ 5.16 crores and in the segment of provision of back office support services, an upward adjustment of ₹ 2.90 crores was proposed. The total TP adjustment proposed by the TPO was ₹ 8.08 crores. The Assessing Officer issued draft assessment order to the assessee, against which the assessee filed objections before the DRP. The DRP directed the Assessing Officer/TPO to examine the computation of margins of comparable companies and also to compute working capital adjustment. The DRP also directed to exclude and include certain comparables in both the segments. Another direction of the DRP was to correct the PLI margins computed by the TPO both for the software services and ITES segment. Based on the directions of DRP, the Assessing Officer/TPO worked out the revised comparable set of margins for both the segments. In respect of segment of provision of software services, the adjusted margins as per the TPO i.e. OP/TC was worked out in respect of five comparables finally selected by the DRP and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tails were available for Accentia Technologies Ltd. and hence, the margins of said concern could not be applied. In this regard, reliance was placed on the decision of the Pune Bench of Tribunal in assessee s own case in ITA No.205/PN/2015 relating to assessment year 2007-08, order dated 15.04.2016. Further, in respect of merger during the year i.e. extraordinary financial event, the learned Authorized Representative for the assessee placed reliance on the decisions of different Benches of Tribunal. 14. The learned Departmental Representative for the Revenue however, strongly opposed the same. 15. We have heard the rival contentions and perused the record. While benchmarking international transactions, the endeavour needs to be made that the margins of assessee are to be compared with margins of concerns which are functionally comparable. In the absence of such comparability, the margins of independent concerns cannot be applied to benchmark the arm's length price of international transactions undertaken by the assessee. The learned Authorized Representative for the assessee before us has pointed out that in ITES segment, wherein an upward adjustment of ₹ 1.82 crore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and should be excluded from final list of comparables. In this regard, reliance was placed on the ratio laid down by the Delhi Bench of Tribunal in Bechtel India Pvt. Ltd. Vs. DCIT in ITA No.1478/Del/2015, relating to assessment year 2010-11, order dated 21.12.2015. 20. The learned Departmental Representative for the Revenue on the other hand, referred to the order of DRP/TPO/Assessing Officer in this regard. 21. We have heard the rival contentions and perused the record. The assessee is operating in ITES segment, wherein the services are being provided to associated enterprises, whereas the concern Fortune Infotech Ltd. had its own unique web based software, through which it provides services to its customers. The said concern is not comparable to the entity engaged in ITES segment, has been deliberated upon by the Delhi Bench of Tribunal in Equant Solutions India Pvt. Ltd. Vs. DCIT (supra) and it has been held that the concern develops its own software for performing specialized services in medical transcription and patient record management and the same was held to be not functionally comparable to an entity engaged in ITES segment. We find merit in the claim of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directed to be excluded by the DRP is Infosys Ltd. on account of its brand value and high turnover. The learned Authorized Representative for the assessee pointed out that in case Infosys Ltd. is excluded from list of comparables selected by the TPO, the assessee was within +/-5% of margins. Accordingly, we proceed to decide only the issue of exclusion of Infosys Ltd. from final list of comparables, which is so directed by the DRP. We find that exclusion of said concern Infosys Ltd. on the basis of its high turnover and brand value has been considered by us in several decisions and because of its huge brand value and also high turnover, the said concern is not comparable to the assessee and hence, the margins of Infosys Ltd. are to be excluded from final list of comparables. Accordingly, we hold so. Once the said concern is excluded from final list of comparables, then the assessee claim that its margins are within +/-5% of mean margins of comparables finally selected and hence, no TP adjustment is to be made in the hands of assessee. Accordingly, allowing the plea of assessee, we do not adjudicate the other issues raised in the appeal filed by the Revenue, being academic. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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