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TMI Blog2017 (11) TMI 1856X X X X Extracts X X X X X X X X Extracts X X X X ..... in law; 1. The Ld Assessing Officer ('AO') pursuant to the directions of the Ld. Dispute Resolution Panel ('DRP') erred in rejecting the benchmarking approach adopted/contemporaneous documentation maintained by the appellant and thereby making a transfer pricing adjustment of Rs. 1,82,90,976 to the income of the appellant by holding that the international transaction, pertaining to provision of IT enabled back office support services ("ITES Services or back office support services') to the associated enterprise ('AE') are not at arm's length under the Income-tax Act, 1961 ('the Act'). 2. On the facts and in the circumstances of the case, the Ld. DRP/AO erred in modifying the benchmarking analysis, as conducted by the appellant using 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, thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stances of the case, whether the Ld. Dispute Resolution Panel was right in law and on facts in excluding companies which are considered as functionally comparable by the assessee himself. 5. On the facts and in the circumstances of the case, did the Ld. Dispute Resolution Panel erred in not appreciating the term of Rule 10B(2) of the Income-tax Rules, 1962 regarding functional comparability. 5. The assessee in CO No.43/PUN/2016 has raised the following grounds of objections:- 1.1 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 including the companies that are functionally dissimilar to that of the Respondent's Software Services segment namely Acropetal Technologies Ltd. (Segment) 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 L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices for the year under consideration was Rs. 41.74 crores. The assessee had adopted TNMM method and had selected independent third party comparables. The margin of assessee was worked out 16.38% as against margin of comparables as per the TP study report at 13.18% and hence, the assessee claimed that the same were at arm's length price. In respect of provision of back office support services, the total value of transactions was Rs. 18.19 crores. The assessee applied TNMM method and its margin worked out to 17.18%. The mean margin of comparables was selected by the assessee in TP study report was 14.27% and the assessee claimed the said transaction held to be at arm's length price. The TPO however, in both the segments selected 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 Rs. 5.16 crores and in the segment of provision of back office support services, an upward adjustment of Rs. 2.90 crores was proposed. The total TP adjustment proposed by the TPO was Rs. 8.08 crores. The Assessing Officer issued draft assessment order to the assessee, agains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the learned Authorized Representative for the assessee pointed out that it was not functionally comparable to the assessee since it was offering services in healthcare i.e. medical transcription and billing, etc. Secondly, there was an extraordinary event of merger during the year. The assessee further pointed out that no segmental details 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 ab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Ltd., which is sought to be excluded being functionally not comparable. The said concern was claimed to be functionally not comparable. The case of assessee before us is that the said concern has own software and is engaged in web application, mobile application, web designing, etc. hence, it is functionally different 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 Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ain concerns and the mean margins of finally selected worked out to 18.42% and since the same was within +/-5% of the assessee's margins, no TP adjustment was made by the Assessing Officer in software services segment. However, the Revenue is in appeal against the same. One of the concerns which has been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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