TMI Blog2021 (1) TMI 911X X X X Extracts X X X X X X X X Extracts X X X X ..... ited having different financial year cannot be a comparable company with that of the assessee company. It has been, therefore, rightly rejected by the TPO as well as DRP and that view is, hereby, sustained. Thus, ground raised in appeal by the assessee is partly allowed. Ninestars Information Technologies Limited company is functionally non comparable with that of the assessee company. That also, there is also non availability of reliable segmental report in respect of this company. We direct the TPO/AO to exclude this company from the final list of comparables with that of the assessee company. - ITA No. 2520/PUN/2017 - - - Dated:- 19-1-2021 - R. S. Syal , Vice President And Partha Sarathi Chaudhury , Member (J) For the Appellant : Nikhil Mutha For the Respondents : Sardar Singh Meena ORDER Partha Sarathi Chaudhury, Member (J) This appeal preferred by the assessee emanates from the directions of the Ld. Dispute Resolution Panel (DRP), Panel-3, Mumbai dated 09.06.2017 passed u/s. 144C(5) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') for the assessment year 2013-14 as per the grounds of appeal on record. 2. At the very out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n operating in nature and determined the average PLI of the comparable companies at 18.56% (single year), as against the PLI 14.28% of the assessee. Accordingly, the TPO made an adjustment of ₹ 3,54,36,214/- to the value of the assessee's international transactions. The Assessing Officer incorporated the adjustment as ₹ 3,54,36,214/- in the draft assessment order. He proposed to assess the assessee's income at ₹ 18,51,69,180/- as against its return of income at ₹ 14,97,32,970/-. (A) JINDAL INTELLICOM PRIVATE LIMITED: 6. In respect of Jindal Intellicom Private Limited to be included in the final list of comparable, the assessee submitted that Jindal is an international call center for rendering voice and data services to overseas customers and holds certificate from Software Technology Parks of India recognizing the project as a 100% export oriented unit. The assessee has considered Jindal Intellicom Private Limited as comparable to it. The TPO in show cause notice has rejected Jindal Intellicom Private Limited for operational loss. The assessee submitted that Jindal Intellicom Private Limited during financial year 2012-13 has earned profits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumes power only for call center equipment and for office requirements, therefore, furnishing information pertaining Conservation of Energy Technology Absorption is not applicable to our company. That further, at Page 76 of the paper book, it is stated that the company is an international call center for rendering voice and data services to overseas customers and holds certificate from Software Technology Parks of India recognizing the project as a 100% export oriented unit. That later on in the disclosure of general information about company i.e. Jindal Intellicom Private Limited on the Column Types of principal product or services, at Page 151 of the paper book, it is stated that description of product or service is Telephone Call Center services. The statement of profit and loss account enclosed at Page 152 of the paper book wherein revenue from sale of products is Nil and revenue is generated only from sale of service which is very much evident. Similarly at Page 158 of the paper book, it is specified about this company i.e. Jindal Intellicom Private Limited that in accordance with Accounting Standard 17-Segment Reporting, the company has only one reportable business se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions vary substantially over a period of time changing the results of business substantially from one period to another. By a sudden change in exchange rate in a particular month (say April), a company may incur substantial forex losses and also its business may be impacted by higher prices of raw materials imported by it and lower prices of exports of finished goods manufactured by it. So, there may be substantial difference between the performance of a company having its accounting year ending in March and another company having accounting year ending in April. As per the assessee, contemporaneous data does not necessarily mean data pertaining exactly to the same financial year and covering the same period as the international transaction under consideration. However, Rule 10B(4) does not use the word Contemporaneous Data . The Rule 10B(4) reads:- The data to be used in analyzing the comparability of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into: As per the above rule, the data to be used for transfer pricing study is the data relating to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffect and creates a hurdle wherein the effort required to search for such comparables data for the financial year is not commensurate with the result. In addition, in order to reach at such uncontrolled comparables. the assessee as well as the TPO apply certain filters in accordance with the provisions of Rule 10B, For e.g. the filter of export income realization is applied for comparison of an international transaction involving export of goods and services; filter of related party transaction is applied for the purpose of identifying only those comparables which are functioning in a relatively Uncontrolled environment, It is difficult to apportion information required for applying such filters, If the accounting period is not congruent to the accounting period of the assessee. In order to carry out FAR analysis, assessees and the TPOs apply the filter of Net worth. Generally net worth of a company is determined on the last day of the accounting year. Therefore, appointment of data will again lead to lopsided indicators for comparability analysis. Rule 10C(2)(c) provides for the requirement of the availability, coverage and reliability of data necessary for application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e tested party. Their Lordship vide Para 11 of the order has observed that in terms of Rule 10B(4) of the Income Tax Rules, 1962, the analysis for comparison shall be on the data relating to the financial year in which the international transaction has been entered into. The provision of Section 10B(4) of the Rules are clear in as much as it obliges that the data to be used for comparability analysis should be of the same financial year in which the international transactions were entered into by the tested party. In this case, when the matter came up before the Hon'ble High Court in appeal by the Revenue, the Tribunal had held that the Company i.e. M/s. Transwork Ltd. cannot be treated as comparable with that of the assessee company since the financial year during which the international transactions were entered into were different. The Revenue before the Hon'ble High Court contended that the mandate of Rule 10B of the Rules can be ignored as the difference is only of three months. Thereafter, Their Lordship has held that this argument of the Revenue is without any basis and no such liberty is granted in terms of Rule 10B(4) of the Rules. The findings of the Tribunal bein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he company is primarily engaged in the transformation of content form print media to digitization which is clearly an ITes activity. Further it is seen from the information available in the website of this company that the other activity engaged in by the company i.e. media monitoring services, is also in the nature of IT enabled services. This is evident from the following extract from the website of the company which is available under the link solutions and sub link media monitoring services . Ninestars is the # 1 offshore global media monitoring service provider. The company provides global media monitoring firms with completely managed services clipping, summary, transcription and analytics across media. It has been further stated in the tech-capabilities appearing in the above mentioned section of the website that Ninestars has been bringing in optimum levels of automation and accuracy to the process of med is monitoring to help achieve timely delivery, scale, quality and cost efficiency. Thus, it is seen that both the Digitization and Media Monitoring Services activities carried out by this company are IT enabled services (ITES) only. In the segme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1.9 Functionally different: The Assessee wishes to submit your goodself that Ninestars Limited is primarily engaged in providing following services: a) Digitization b) Digital solutions and c) Media monitoring The details of services provided by Ninestars are also evident from the website extract of the company which is extracted in the TPO's order. As evident from the extract Ninestars is engaged into providing digital transformation solutions. Further, the assessee submits that Ninestars is engaged into providing media monitoring services which includes high end services in the digitization area and conversion of available media content into a formal digitized version so as to assist the clients in their business requirements. Accordingly, as evident from the above, the said services as rendered by the Ninestars do not bear similarity with routine ITes provided by the assessee to its AEs. A) Key propriety adopted by Ninestars Further, the assessee submits that Ninestars owns and utilizes certain distinguishable key propriety tools such as star view, star chive, star clips etc into its business to assists its business in, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurred by the segments of Ninestars thus rendering the segmental information unusable for the purpose of discussion of comparability. The same is extracted in the TPO's order. 1.1.11 Conclusion In view of the above analysis the assessee would like to submit that Ninestars cannot be considered as comparable to the assessee for FY 2012-13 on account of following reasons: Ninestars is functionally non comparable to the assessee company. Services rendered by Ninestars does not classify as ITes as per Rule 10TA Non availability of a reliable segmental report and Full copy of Annual report of Ninestars for FY 2012-13 is provided in soft copy in CD. 18. Taking us to Page 400 of the Paper book, wherein extraction from website of Ninestars Information Technologies Limited has been placed on record, the Ld. Counsel for the assessee demonstrated the main domain of the activities of this company being a leading digital transformation solutions company. In the Director's report placed at Page 171 of the Paper book, it is clearly stated regarding the performance of this company that during the year under review the company had entered into si ..... X X X X Extracts X X X X X X X X Extracts X X X X
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