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TMI Blog2017 (1) TMI 1705X X X X Extracts X X X X X X X X Extracts X X X X ..... exemption u/s 10A of the Act and claimed entire business income as exempt income u/s 10A of the Act. It e-filed its return of income for impugned Assessment Year [AY] on 30/09/2009 declaring total income of Rs. 1,42,00,730/- under normal provisions of the act and Rs. 5,51,99,646/- u/s 115JB of the act. The same was picked up for scrutiny assessment u/s 143(3). Since TP issues were involved, the matter was referred to Addl. CIT- 1(5) [TPO] u/s 92CA(1) on 21/10/2011 for computation of Arm's Length Price [ALP] of international transactions. Transfer Pricing Officer suggested TP adjustment of Rs. 5,11,86,725/- vide order dated 21/01/2013 and following the same, draft assessment order dated 26/03/2013 was sent to Dispute Resolution Panel [DRP] for its directions u/s 144C(5). Being aggrieved, the assessee filed objections before DRP but DRP finding TPO method reasonable & acceptable and did not disturb the proposed adjustment in the draft assessment order vide its order dated 13/12/2013. This resulted in the assessing officer passing a final order dated 15/01/2014 u/s 143(3) r/w Section 144C(13) of the Act wherein total income was determined at Rs. 6,53,87,460/-. Aggrieved by the same, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d database. TPO proposed to apply additional qualitative as well as quantitative filters in addition to the filters selected by the assessee. TPO also proposed to exclude foreign exchange loss / gain from operating margin on the premises that such gains / losses were not dependent upon the operations carried out by the company but arose as a result of various extraneous factors and these fluctuations had nothing to do with the business operations of the assessee. TPO further noted that the assessee, in its study, excluded seven comparables, which were otherwise includible. Thereafter, TPO rejected all the filters adopted by the assessee except 'turnover filter' and proceeded to apply various filters as suggested by TPO. Applying the same, TPO found that only one comparable namely 'Cosmic Global Ltd.' out of 11 comparables selected by assessee could pass the filters. Further, assessee accepted another comparable namely 'Aditya Birla Minacs Worldwide Ltd.' as suggested by TPO which could pass the said filters. Finally, selecting these two comparables, TPO worked out average PLI of these two comparable as 36.02% and determined the TP adjustment of Rs. 5.11 crores in the following man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... working capital adjustment and provided working thereof before TPO but the same has not been granted by the TPO. Hence, the assessee is entitled for working capital adjustment in terms of decision of Mumbai Tribunal in Capgemini India Pvt. Ltd. (ITA No. 7861/Mum/2011) where in similar circumstances, Tribunal directed TPO to make this adjustment. 7. Per Contra, Ld. CIT DR, by drawing our attention to Schedule-10 of financial statements of the assessee for impugned AY, opposed additional grounds of appeal on the premises that the assessee always treated forex gains / loss as part of non-operating incomes and hence, could not raise altogether new contentions so as to disturb the whole TP study. If the said contention of the assessee is accepted, this will require adjustment to PLI of assessee which is not permissible as per Rule 10B. For the contention that PLI of only the comparables could be adjusted and not that of tested party, Ld. DR placed reliance on the decision of Delhi Tribunal in Westfalia Separator India (P.) Ltd. Vs. ACIT [52 taxmann.com 381].Further, Ld. DR contended that on similar lines of 'Cosmic Global Ltd.' as contested by Ld. AR, 'Aditya Birla Minacs Worldwide Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich resulted into impugned additions. Rule 10B(1)(e) deals with TNMM method which calls for suitable adjustment to net profit margins to make the two data comparable. We are unable to accept the contention of the Ld. DR that suitable adjustments could be made only in the margins of comparables and not in the margins of the Tested Party. Without making suitable adjustments in the margin, proper comparison could not be drawn. We find that the in case law relied upon by Ld. DR, the Tribunal had many alternative reason not to tinker with the PLI of the tested party. Further, the issue of treatment of forex gain / loss is now well settled by various judicial pronouncements and more specifically in judgments relied upon by assessee, wherein it has been held that forex gain/loss form part of the operating margin of the assessee as well as comparables. Further, we find that the assessee suffered net forex loss in AY 2010-11 and reflected the same as part of operating expenses under Schedule-12 which gives strengths to the arguments of Ld. AR. Since TPO has excluded forex gain / loss from operating margin, the same is not in line with these judicial pronouncements. Therefore, we find that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the matter to the file of the TPO who shall consider the external comparables and determine the ALP by taking the segmental financials after providing adequate opportunity of being heard to the assessee. We have considered these assertions but we find that the sole comparable left out was selected by the TPO himself and not by the assessee and this comparable was never disputed before DRP and DRP also did not find the same as non-comparable. Hence, at this stage it would be very difficult to accept this plea of Ld. DR to undo the comparable selected by the revenue and never challenged at any stage. However, we are of the considered opinion that proper benchmarking of the margin is not possible with this single comparable and therefore, on the peculiar facts and circumstances, we are inclined to restore the matter back to the file of AO/TPO to undertake TP study afresh by taking robust comparables after providing adequate opportunity of being heard to the assessee. As already held by us in preceding paragraphs, forex gain/loss shall for part of operating operations and suitable adjustments, as statutorily admissible, shall be made in TP study. 13. The appeal of the assessee is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was not granted working capital adjustment. Following our observation in preceding para-11, the same is admissible to the assessee. 19. The Ld. AR has assailed all the three comparable selected by TPO out of which we have already excluded 'Cosmic Global Ltd.' in AY 2009-2010 on the ground of functional dissimilarity and following the same, the same is excluded here also. 20. Infosys BPO Ltd. has been assailed on the ground that the turnover of this company was very huge i.e. 43 times the turnover of the assessee and further, this comparable had high brand value associated with it. Reliance has been placed on decision of Hon'ble Bombay High Court in CIT Vs. Pentair Water India Pvt. Ltd. [ITA No. 18 of 2105 dated 16/09/2015]. Similarly, 'Accentia Technologies Ltd.' has been assailed on the ground that this company was functionally dissimilar and also it was subjected to extraordinary event of amalgamation during the year and hence the figures thereof could not be comparable. Reliance has been placed on the decision of Delhi Tribunal in 'FIL India Business Services Pvt. Ltd. Vs. DCIT' [ITA No. 6867/Del/2014 order dated 12/05/2016]. 21. We have perused the contentions of the Ld. A ..... X X X X Extracts X X X X X X X X Extracts X X X X
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