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TMI Blog2020 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... ated enterprises. The Appellant submits that no transfer pricing adjustment is warranted in its case and wishes to raise the following grounds of appeal, which are without prejudice to each other : 1.1. The DRP/Transfer Pricing Officer ('TPO")/ AO erred in law and in facts by rejecting without giving specific and cogent reasons the search procedure undertaken by the appellant for finding out the comparable companies to benchmark the said technical support services revenue. Further, the fresh search conducted by the TPO itself was ad-hoc, selective and arbitrary without any reasonable and scientific basis. 1.2. The DRP/TPO/AO erred in not considering the analysis submitted by the appellant as regards the comparability or otherwise of few of the so called comparable companies selected by the TPO with respect to the following: * Companies that are functionally different ; * Companies with high profit margins having abnormal operating conditions during the year under consideration ; * Companies with related party transaction. 1.3. The DRP/TPO/AO in case of one of the alleged comparable companies chosen by the. TPO viz. Mold Tech Technologies Ltd. erred in treatment of & ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... port and manage their IT infrastructures. During the year under consideration, the appellant reported various international transactions which were categorized into distribution segment (Rs. 56.97 crore) and technical support service function (Rs. 6.15 crore). The subject matter of objection before the DRP related to technical support service segment. The international transaction reported in Form 3CEB was provision of technical support services for Rs. 6,14,65,690/-. As per the agreement, the appellant was remunerated at cost plus 10%. It adopted Transactional Net Margin Method (TNMM) as the most appropriate method with OP/Cost as the profit level indicator (PLI) and with the assessee as the tested party. The appellant had selected 6 companies as comparable and found the arithmetic mean of the comparables to be 14.27% and therefore, it was stated that it had suo motu offered additional 5% so that its cost plus mark-up is 15%. The suo motu adjustment made was Rs. 27,32,259/-. It was stated that the margin of cost plus 15% meets the arm's length price (ALP) requirement. However, the TPO determined the ALP margin at 29.92% based on the arithmetical mean of the following 14 comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd., Mold Tek Technologies Ltd. and Acropetal Technologies Ltd. are to be excluded from the list of comparables selected by the AO in view of the order of the Tribunal in Goldman Sachs (I) Securities P. Ltd. v. Addl. CIT (ITA No. 6912/Mum/2012) dated 22.07.2016 for AY 2008-09 and Capital India Pvt. Ltd. v. DCIT (ITA No. 7674/Mum/2012) dated 15.01.2019 for AY 2008-09. In respect of the another comparable M/s Datamatics Financial Services Ltd., the Ld. counsel refers to the order of the Tribunal in M/s Datamatics Financial Services Ltd. v. DCIT (ITA No. 1469/Mum/2012) for AY 2008-09 dated 26.06.2013 and submits that in the said case, the assessee (Datamatics) had not properly apportioned common expenses between the eligible and ineligible units. The Tribunal has held that the taxing authorities have rightly apportioned expenses amounting to Rs. 13.28 lakhs as not eligible for deduction u/s 10A of the Act. Thus it is submitted by the Ld. counsel that M/s Datamatics Financial Services Ltd. be rejected as a comparable to the present appellant. 5. On the other hand, the Ld. Departmental Representative (DR) submits that in the case of Accentia Technologies Ltd. (Seg.), the company is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Tribunal excluding Cosmic Global Ltd. as comparable after rendering a finding that the business model adopted by Cosmic Global Ltd. was outsourcing business model as against respondent (Aptara) having an in-house business model and thus the profit margin would necessarily not be comparable. In Goldman Sachs (I) Securities P. Ltd. (supra), the Tribunal for AY 2008- 09 has held in the case of Mold Tek Technologies Ltd. as under : "53. We have considered the submissions of the parties and perused the material available on record. We find that the Tribunal, Mumbai Special Bench in Maersk Global Centres India Pvt. Ltd. (supra) while specifically dealing with the comparability of the aforesaid company to a ITES service provider has held that since the company is engaged in providing engineering design service which is a high end service in the nature of KPO it cannot be treated as comparable. The ratio laid down by the Special Bench as aforesaid has been consistently followed in the other decisions of the Tribunal cited by the learned Sr. Counsel wherein it has been held that the company cannot be treated as comparable as it is involved in providing KPO service which is functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... irmed the order of the taxing authorities in respect of apportionment of expenses or treatment of other income amounting to Rs. 13.28 lakhs as not eligible for deduction u/s 10A of the Act. Thus M/s Datamatics Financial Services cannot be considered as a comparable to the appellant-company. We may again mention here that the judgment of the Hon'ble Bombay High Court in Aptara Technology (P.) Ltd. and the order of the Tribunal in Goldman Sachs (I) Securities P. Ltd. and Capital India Pvt. Ltd. are for the same assessment year i.e. 2008-09. Since Accentia Technologies Ltd., Cosmic Global Ltd., Mold Tek Technologies Ltd., Acropetal Technologies Ltd. and M/s Datamatics Financial Services P. Ltd. are excluded by us, we direct the AO to compute the arithmetic mean margin of the remaining comparables and pass consequential order. Needless to say, the AO would give a reasonable opportunity of being heard to the appellant before passing the order. 7. The next issue relates to disallowance of Rs. 17,48,571/- made by the AO u/s 14A r.w. Rule 8D. In the assessment order dated 30.10.2012, the AO has mentioned that the assessee has received dividend of Rs. 2,94,47,744/- from its investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 06.03.2020, this order thereon is being pronounced today, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax Appellate Tribunal Rules 1963, which deals with pronouncement of orders. Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, a nationwide lockdown was imposed for 21 days to prevent the spread of Covid-19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid-19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial work all over the country. As a matter of fact, it has been such an unpreceden ..... X X X X Extracts X X X X X X X X Extracts X X X X
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