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TMI Blog2018 (1) TMI 1613X X X X Extracts X X X X X X X X Extracts X X X X ..... iated Enterprises in USA and other unrelated parties both within and outside India. 5. The appellant company had benchmarked the said transactions in its transfer pricing study using internal comparable Uncontrolled Price (CUP) Price Method. As the average hourly rate from AE in USA was higher than that of the Non AEs in UK, the transactions were considered to be at arm's length. 6. During the course of the transfer pricing assessment proceedings, the appellant company also submitted additional analysis in the form of Internal Transaction Net Margin Method. The net margins derived from AE business was higher than that of Non AE business and hence again the transactions were considered to be at arm's length. 7. While framing the transfer pricing assessment order, the TPO rejected the Internal CUP and also rejected the Internal TNMM as submitted during the course of transfer pricing assessment proceedings. The TPO concluded the proceedings by applying the external TNMM by adopting five comparables. The TPO rejected the search undertaken by the appellant company and the external comparable companies given by the appellant. 8. Assessee carried the matter before the ld. CIT(A) but w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e find that the appellant company has provided identical services to AE as well as non AEs and functions performed, assets used and risks assumed in AE as well as non AE business were similar. Therefore, in our considered opinion, even internal TNMM can be considered as most appropriate method. We find that the operating margin of the appellant from the AE segment was derived at 30.90% and the operating margins in the non AE segment was derived at Rs. 74.92%. 14. The TPO rejected the internal TNMM analysis on the basis that as the appellant has made operating loss in non AE business, the transactions with non AEs are not at independent rates and they have been undertaken only to increase capacity utilization. The total turnover of Non AE segment of Rs. 5.67 lacs as against the turnover of Rs. 1909.60 lacs in the case of international transactions with AE. The ld. CIT(A) confirmed the rejection by holding that the turnover of the third party segment is very much less compared to that with AE. The ld. CIT(A) further held that the appellant has not proved the allocation of the common cost between AE and non AEs and whether they are scientific and at arm's length. We find that the TPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tained in the normal course of business. As regards vague generalizations by the TPO to the effect that these accounts are manipulated, that allocation basis of expenses is unfair and that these accounts conceal true profitability, we find that these observations are too sweeping and generalized the observations to have any merits. In any event, learned counsel for the assessee has painstakingly taken us through the segmental accounts, pointed out the basis of allocation of the expenses. We have noted that the allocation of expense is on the man hour basis, which is quite fair and reasonable, and that every person has to punch in hours on a specific project. We have also noted that all these details and expense allocation basis were also before the TPO and even then, no specific defects were pointed out by the TPO. Taking into account all these factors, as also entirety of the case, we are of the considered view that the TPO indeed erred in rejecting the segmental accounts and thus declining to accept the internal comparable. We are also of the view that the size of the uncontrolled transaction or transactions being smaller, by itself, does not make these transactions incomparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Party) 5,72,59,082 18,53,32,713 30.90% 17. The ld. CIT(A) rejected Allsec Technologies Limited as comparable by observing as under:- 4.2.7.7 Allsec Technologies Limited is primarily engaged in the business of operating a call center, The services provided by the company include data verification, processing of orders received through telephone calls, telemarketing, monitoring quality of calls of other call centers, customer services and HR and payroll processing for domestic companies. For the period ended 31 March 2009, 31 March 2008 and 31 March 2007, 90 percent, 99 percent and 99 percent of the operating revenues respectively were derived from the above mentioned services. Therefore, this company is functionally comparable, however, because I have rejected all companies having export turnover less than 75%, the company should not be selected as comparable company. Accordingly, Allsec Technologies Ltd cannot be accepted as comparable. However without prejudice to the above, since the appellant has carried out the search during the assessment proceedings and not documented the same while maintaining the documents as prescribed under section 92D r.w Rule 10D, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the actual ratio of export revenue to total turnover of Allsec Technologies stands at 74.45% as shown on page 84 of the paper book. If we literally consider the filter applied by the TPO, this case does not pass the test. However, it is seen that the assessee included this case in the list of comparables by applying the filter of excluding the cases in which export revenue was less than 25% of the total revenue. There can be no hard and fast rule for putting a specific ceiling in a particular filter. The filters are not sacrosanct as not statutorily prescribed. These are used or modified for selection or rejection of comparables as per the convenience of the concerned party. If an assessee wants to include a certain case in the list of comparables which suits its requirements, then, it will suitably modify the filter itself or the ceiling in such filter, so as to fit the bill. Position is no different when it comes to the turn of the Revenue. If it wants to include a particular case in the list of comparables, it will also modify the filter or ceiling in such filter to suit its interest. Equally, if both the sides want to exclude a case, they will modify the filter accordingly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng revenue receivables which were not considered as part of operating profit by the TPO as well as CIT(A). We find that the foreign exchange gain earned by the appellant pertained towards revaluation of its debtors as on the balance sheet date which means that exchange fluctuation was towards revenue item. Further, Safe Harbour Rules are only applicable to those assessee who have opted for Safe Harbour Rules and the same is made effective from A.Y. 2013-14 onwards. 22. We find support from the decision of the Co-ordinate Bench in the case of Rajratna Metal Industries Ltd. Tribunal Ahmedabad Bench in ITA No. 1050/Ahd/2015. The relevant findings read as under:- 7. The Revenue's third and last substantive ground pleads that the lower appellate authority has erred in deleting arm's length price adjustment of Rs. 16,84,60,644/-; as proposed in Transfer Pricing Officer's order dated 21.01.2014 u/s.92CA(3) of the Act and accepted in the abovestated assessment order. Mr. Bidari strongly argues that the CIT(A) ought not to have reversed the impugned adjustment arising from exclusion of foreign exchange / loss; as done by the Assessing Officer. Mr. Dhinal Shah quotes a catina of case law ..... X X X X Extracts X X X X X X X X Extracts X X X X
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