TMI Blog2020 (12) TMI 460X X X X Extracts X X X X X X X X Extracts X X X X ..... ct to exclude Cybermate Infotek Limited from the list of comparables. Acropetal Technologies Limited (Segmental) - There is no choice with the AO to follow or not to follow the direction rendered by the DRP u/s 144C(5). Such a direction is binding in nature upon the AO, who is supposed to follow the same in letter and spirit. Since in the instant case, the DRP categorically directed to include the amount of operating profit of Acropetal Technologies Limited at ₹ 11.83 crore, in our considered opinion, the AO/TPO went on a wrong premise in tinkering with such a figure and substituting it with a different figure. In view of the fact that the AO was bound by the directions of the DRP, we vacate the impugned order to this extent in substituting the amount of operating profit of Acropetal Technologies Limited at ₹ 22.26 crores, which is hereby ordered to be adopted as ₹ 11.83 crore as was directed by the DRP. Comp-u-Learn Tech India Limited (CTIL) - We find that the DRP was conscious of the purview of its power u/s 144C(8). That is why it directed 'satisfaction of other filters applied by him'. Such direction refers to past tense qua the application of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal transaction of Rendering of software development and support services with transacted value of ₹ 15,29,56,672. The assessee followed the Transactional Net Marginal Method (TNMM) as most appropriate method with its Profit Level Indicator (PLI) of Operating Profit/Total Cost (OP/TC) computed at 16.57%. The assessee selected certain comparables to demonstrate that the international transaction was at ALP. The TPO made certain alterations to the comparables selected by the assessee and also to the profit margin of some of the comparables. He shortlisted nine comparables with their mean profit margin at 28.18%, which was taken as benchmark. In this way, the TPO proposed transfer pricing adjustment of ₹ 1,53,44,587. The AO notified the draft order on 23-03-2016 proposing transfer pricing addition of this magnitude. The assessee raised objections before the Dispute Resolution Panel (hereinafter referred to as the DRP'). On giving effect to the directions given by the DRP on 25-11-2016, the AO passed the impugned order making transfer pricing addition of ₹ 1,33,75,076/-. Aggrieved thereby, the assessee is in appeal before the Tribunal. 4. We have heard both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... angible assets appear in it, which exhibits that the assessee did not have its own developed software products available for commercial exploitation. Note No. 19 on Financial statements indicates that the assessee company obtained certain fixed assets on loan or free of cost from Netscout Systems Inc, USA in the nature of computer hardware and other equipments which were not included in the fixed assets since their ownership vested with Netscout Systems Inc, USA. It can be further seen from the assessee's balance sheet that the figure of Capital work-in-progress in the current/preceding year is Nil, which shows that the assessee was working exclusively for its associated enterprise and invoicing the work completed on regular basis without any need to hold its own capital work-in-progress. It is further apparent from the Current assets of the assessee company that there is no opening or closing inventory nor any quantitative information, which evidences that the assessee is not a software product company having any software in stock. With the above analysis of the assessee's balance sheet and other relevant details, we now proceed to determine whether or not Cybermate Infote ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited from the list of comparables. (ii) Acropetal Technologies Limited (Segmental) 8. Insofar as this company is concerned, there is no dispute on its inclusion in the final tally of comparables. The only point of difference is the computation of its PLI for the purposes of working out the mean PLI of all the comparables. The assessee worked out PLI of this company on segment basis at 4.66%. The TPO determined its PLI at 29.62%. In the objections before the DRP, the assessee contended that the TPO made a wrong computation. The DRP in para 8.2 of its directions accepted the contention of the assessee. It directed the adoption of segmental operating profit of Acropetal Technologies Limited at ₹ 11.83 crore and then re-compute the PLI of this company accordingly. For giving effect to the directions given by the DRP, the AO requested the TPO to quantify their implications. In response, the TPO, vide his letter dated 05-01-2017, recomputed OP/OC of Acropetal Technologies Limited at 20.44%. The AO while passing the final assessment order has reproduced the letter received from the TPO. That is how, the AO included Acropetal Technologies Limited in the list of comparab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follow the same in letter and spirit. Since in the instant case, the DRP categorically directed to include the amount of operating profit of Acropetal Technologies Limited at ₹ 11.83 crore, in our considered opinion, the AO/TPO went on a wrong premise in tinkering with such a figure and substituting it with a different figure. In view of the fact that the AO was bound by the directions of the DRP, we vacate the impugned order to this extent in substituting the amount of operating profit of Acropetal Technologies Limited at ₹ 22.26 crores, which is hereby ordered to be adopted as ₹ 11.83 crore as was directed by the DRP. (ii) Comp-u-Learn Tech India Limited (CTIL) 11. The assessee selected this company as comparable. The TPO excluded it by recording on page 14 of his order that the company is in BPO sector and segmental analysis is not available and then on page 26 by finding it to be functionally different. The assessee raised objection before the DRP against exclusion of this company by the TPO, which, in turn, found it to be comparable on standalone basis. The AO/TPO were directed to include Comp-u-Learn Tech India Limited in the set of comparables su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of applying other filters come. If a company is held to be functional different at the threshold, there can be no question of testing the comparability on the basis of other filters. Once the DRP held the company to be functionally similar, the leftover exercise of the TPO of applying the filters, was to be carried out by the TPO. The natural corollary is that only those filters, which were applied by the TPO at the time of passing the order u/s 92CA(3) of the Act, could have been considered anent to this company at the time of giving effect to the directions given by the DRP. 14. We have examined the filters applied by the TPO that have been recorded in the show cause notice dated 04-12-2015 issued by the TPO, a copy of which is available on page 182 onwards of paper book. Para 4.2 discusses the determination of ALP by the assessee in its TP study report. Para 5 dealing with the selection of comparables also stipulates the filters applied by the assessee to accept or reject a company as comparable. A summary of search strategy on Prowess has been given through 9 steps, none of which talks of Employees cost to sales filter. Then, a summary of search strategy on CapitalinePlus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... compliments the mandate of sub-section (8) of section 144C of the Act defining the scope of directions to be given by the DRP. Subsection (8) explicitly provides that the DRP may confirm, reduce or enhance the variations proposed in draft order so, however, that it shall not set aside any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order.' There is no ambiguity in the language of the provision in unmistakably stating that the DRP can suo motu confirm, reduce or enhance the variations proposed in draft order but not direct the AO/TPO to make any further enquiry before passing the assessment order giving effect to its directions. In other words, a fresh exercise of the assessment by the AO, at the instance of the DRP remanding the matter, is prohibited. The raison d'etre for curbing such a power of the DRP is to curtail initiating the entire process all over again by which the AO may have to notify the draft order pursuant to the TPO's fresh determination of the issue giving effect to the direction and once again the matter coming up before the DRP and then the passing of the final assessment order. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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