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TMI Blog2018 (3) TMI 1921X X X X Extracts X X X X X X X X Extracts X X X X ..... OC as against the margin of 11.85% of the appellant. 4. The Ld. AO / Ld. DRP are not justified in law in making an adjustment u/s 92CA of Rs. 93,05,870/- to the price received by the appellant. 5. The Ld. AO / Ld. DRP ought to have rejected the following companies which were objected by assessee on the grounds of functional dissimilarity and which are also rejected by Ld. DRP during AY 2011-12 i.e., S.No. Name of Comparable Company 1. Accentia Technologies Ltd. 2. Eclerx Services Ltd. 3. Infosys BPO Ltd. 4. TCS E-serve Ltd 6. The Ld. AO / Ld. DRP erred in not accepting the assessee's contention of rejecting cross domain solutions Pvt. Ltd. on the grounds of functional dissimilarity R & D Services 8. The Ld. AO / Ld. DRP are not justified in law in considering wrong comparable and consequently arriving at a high arithmetic mean of 19.30% as a ratio of OP/OC. 9. The Ld. AO / Ld. DRP are not justified in law in making an adjustment u/s 92CA of Rs. 50,53,176/- to the price received by the appellant. 10. The Ld. AO / Ld. DRP erred in not rejecting Oxygen Bio Research Pvt. Ltd. being functional dis-similar to that of assessee company. 11. The appellant company would lik ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Capitaline data bases. Since the margins were within the range of +5%, no transfer pricing adjustment was proposed by the assessee in its Transfer Pricing Study. 3.2 However, invoking provisions of Section 92C(3), the assessee's methodology was rejected by Ld. TPO and fresh benchmarking analysis was done after applying new filters which were as follows:- -Companies whose data was not available for FY 2011-12 were excluded -Companies whose ITeS income was less than INR 1 Crore were excluded -Companies having ITeS income less than 75% of the total operating revenue were excluded -Companies whose export sales were less than 25% of the sales were excluded -Companies having more than 25% of related party transactions were excluded -Persistent loss-making companies were excluded -Companies having different financial year were excluded -Companies which were functionally different were excluded -Companies having peculiar economic circumstances were excluded. Using the same databases, 10 comparable were identified having mean margin of 24.96% against which concession for working capital adjustment to the extent of 2.06% was provided. The net margins so derived worked out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arding exclusion of the 5 comparable as stated above. Therefore, we restrict our finding to the issue of selection of these 5 comparable. Our adjudication with respect to these comparable is given in succeeding paragraphs. 3.6.1 Accentia Technologies Ltd. The Ld. TPO had found this entity as comparable since the activity of this entity, in the opinion of Ld. TPO, fall under ITeS services only. The Ld. DRP confirmed the same by observing that the assessee was engaged in providing high end services to its AE which would be akin to KPO services and further the assessee accepted 2 other entities providing KPO services. Drawing our attention to extract from annual report, Ld. AR submitted that this entity was offering complete healthcare documentation as well as receivables management including installation and maintenance of all software, hardware and bandwidth infrastructure which could not be termed as akin to ITeS services as provided by the assessee and therefore, it was not functionally comparable. Further, this entity holds intangibles in the shape of goodwill, brands and IPRs and computer & software which are more than 59% of value of its fixed assets. The attention has a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is being so, the ratio of decision of Hon'ble Bombay High Court in in CIT V/s Pentair Water India (P.) Ltd. [supra] would become applicable wherein it has been observed as under: - 5. On perusal of the impugned Order passed by the Tribunal dated 23.05.2014, we find that the Tribunal has recorded the reasons for not accepting the said three companies are comparable by stating as follows : (i) HCL Comnet Systems & Services Ltd :- We find force in the submission of the ld. AR that this company cannot be a comparable as the turnover of this company is 260.18 crores while in the case of the Assessee, the turnover is around Rs. 11 crores only. While making the selection of comparables, the turnover filter, in our opinion, has to be the basis for selection. A company having turnover of Rs. 11 crores cannot be compared with a company which is having turnover of Rs. 260 crores which is more than 23 times the turnover of the Assessee. This companycannot be regarded to be in equal size to the Assessee. We, accordingly, direct the AO to exclude this company out of the comparables. (ii) Infosys BPO Ltd.:- In this case also we noted the turnover in respect of this Company is Rs. 649.56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd W.B. Electricity Regulatory Commission v. CESC Ltd)" 8. In the present Appeal, the Appellant-Revenue has not been able to controvert or deny the data relied upon by the Authorities below to come to such conclusion. The said Companies are no doubt large and distinct companies where the area of development of subject services are different and as such the profit earned therefrom cannot be a bench-marked or equated with the Respondent- Company. 9. Shri Jain, learned Counsel has rightly relied upon the Judgment of the Delhi High Court in the case of CIT v. Agnity India Technologies (P.) Ltd. [2013] 219 Taxman 26/36 taxmann.com 289. Learned Counsel has also brought to our notice the Order of the Income Tax Appellate Tribunal whilst examining similar circumstances for the assessment year 2005-06. He has taken us through the findings therein to point out that the conclusions arrived at are based on a comparison that the condition in any uncontrolled transaction between an independent enterprise for the purpose of such comparison, economically relevant characteristics must be sufficiently comparable if two parties are to be placed in a similar situation. Learned Counsel as such subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tech India Pvt. Ltd. Vs DCIT [2018 97 Taxmann.com 2]. Applying the ratio of decision of Hon'ble Bombay High Court in CIT V/s Pentair Water India (P.) Ltd. [supra], in similar manner, we direct for exclusion of this entity. This is further fortified by the decision of Delhi Tribunal in Baxter India Pvt. Ltd. V/s ACIT [supra], for same AY, wherein the co-ordinate bench directed for exclusion of this entity on account of functional dissimilarity and extra-ordinary events which took place during the year. Similar is the view of Bangalore Tribunal in Mobily Infotech India Pvt. Ltd. Vs DCIT [supra]. 3.6.4 TCS E-serve Ltd. It has been submitted that this entity is broadly into KPO services as evidenced by its annual report. Reliance has been placed on the decision of Bangalore Tribunal in Mobily Infotech India Pvt. Ltd. Vs DCIT [2018 97 Taxmann.com 2]. Further, the scale of operating income would not justify inclusion as an appropriate comparable in terms of decision of Hon'ble Bombay High Court in CIT V/s Pentair Water India (P.) Ltd. [2016 69 taxmann.com 180] as followed by Mumbai Tribunal in Integreon Managed Solutions India Pvt. Ltd. Vs ACIT [2019 101 Taxmann.com 289]. Upon perus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld. AR has canvassed for exclusion of 2 comparable viz. Oxygen Bio Research Pvt. Ltd. & Syngene International Ltd. The perusal of assessee's TP study reveal that the assessee's AE was to provide basic designing for undertaking R & D activity and AE would place work order with the assessee specifying the scope of R&D to be carried out by the assessee. Our adjudication with respect to two comparable is given in succeeding paragraphs. 4.3.1 Oxygen Bio Research The Ld. AR has submitted that complete set of Annual Report for this year was not available in public domain and therefore, comparison would not be feasible. Another argument is that the said entity has been acquired by another entity during the impugned AY. Lastly, there was change in method of depreciation policy during FY 2010-11 which has affected its profitability and therefore, the same would not be a comparable entity. Reliance has been placed on the decision of Hyderabad Tribunal rendered in Capital IQ Information Systems India Pvt. Ltd. V/s DCIT [2013 32 Taxmann.com 21]. However, upon perusal, we find that all these arguments have already been dealt with by Ld. DRP which remained uncontroverted before us. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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