TMI Blog2018 (10) TMI 1902X X X X Extracts X X X X X X X X Extracts X X X X ..... arable companies. Therefore we hereby remit back the matter with respect to selection of comparable companies other than in the EDS Segment to the file of Ld.TPO for de-nova consideration. - I.T.A.No.336/Chny/2018 - - - Dated:- 16-10-2018 - SHRI A.MOHAN ALANKAMONY AND SHRI DUVVURU RL REDDY, JJ. Appellant by : Shri Arijit Chakravarty, Advocate Respondent by : Shri M. Srinivasa Rao, CIT ORDER A. Mohan Alankamony, J. This appeal by the assessee is arising out of the directions issued by the Ld. Members of the DRP dated 27.09.2017 and the assessment order passed by the Ld.DCIT dated 28.11.2017 passed U/s. 143(3) r.w.s. 92CA 144C(13) of the Act for the assessment year 2013-14. 2. The assessee has raised several grounds in its appeal however the issues argued before us are reproduced herein below for adjudication: EDS Segment 1.1 The Ld.TPO has erred in treating M/s. Acropetal Technologies Limited as the comparable company while selecting the comparable in the EDS segment. 1.2 The Ld.TPO has erred by considering only the margin of the segment Engineering Design Services of M/s. Vama Industries Ltd., as the comparable. 1.3 The Ld.TPO has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be taken as comparable company. The Ld.AR also brought out the fluctuations of operating profit/operating cost disclosed by the company for various financial years as follows FY 2010-11 - 26.37%, FY 2011-12 15.98%, FY 2012-13 57.66% FY 2013-14 - 7.21%. It was therefore argued that M/s. Acropetal Technologies Ltd., cannot be taken as a comparable company. We find merit in the submission of the Ld.AR. In the Financial Year 2012-13 relevant to the Assessment year 2013-14, M/s. Acropetal Technologies has disclosed 57.66% as its margin which seems to be quite abnormal when compared with the margins in the preceding and succeeding financial years. Therefore as contented by the Ld.AR, we are of the considered view that M/s. Acropetal Technologies Ltd., cannot be accepted as a comparable company. Hence we hereby direct the Ld.TPO to compute the ALP of the assessee by excluding M/s. Acropetal Technologies Ltd., as comparable company. Since the Ld.AR has submitted before us that if M/s. Acropetal Technologies Ltd., is excluded then no further adjustments are required in the EDS segment, we restrain from adjudicating the issue with respect to Vama Industries and Tata Elxsi as com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... %. Therefore in the relevant assessment year there was extraordinary operations and hence cannot be taken as comparable company. Before us the facts presented by the Ld.AR could not be disputed by the Ld.DR. After considering the issue, we are of the view that when the company is functionally dissimilar and when in a particular year there is an extraordinary profit, then the company cannot be taken as a comparable company. In the case of M/s. Hartron Communication, it is apparent that the company has achieved extraordinary profits during the relevant assessment year and further it has diversified activities and therefore functionally dissimilar to that of the assessee company. Hence as pleaded by the Ld.AR, we are of the considered view that M/s. Hartron Communication cannot be accepted as a comparable company. 8. Ground No.2.4: M/s. Caliber Point Business Solution as the comparable company:- The Ld.AR argued by stating that M/s. Caliber Point Business Solution is a functionally similar company and the financial data of the company can be extrapolated. Therefore though it is a company with different financial year, it can be treated as a comparable company. The Ld.AR further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd merit in the submission of the Ld.AR. When there is a clear cut finding that the company is functionally dissimilar, the Ld.TPO ought to have restrained from accepting the company as a comparable company. Therefore we hereby direct the Ld.TPO to exclude M/s. Dembla Valves Ltd., as comparable company. 11. Ground No.3.3: M/s. SE Electricals Ltd., as comparable company:- The Ld.AR submitted before us that the company was manufacturing generators, transformers and panels used in wind turbine generators. Therefore the company is functionally dissimilar. It was further submitted that the TPO had himself applied the functionality dissimilar filter in the case of M/s. SE Electricals Ltd., and observed that under TNMM only broad functional comparability is required hence it was treated as comparable. Therefore it was argued that when the Ld.TPO himself had agreed that the company is functionally dissimilar then he ought not to have selected the company as comparable company. We find merit in the submission of the Ld.AR. When there is a clear cut finding that the company is functionally dissimilar, the Ld.TPO ought to have restrained from accepting the company as a comparable compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the Bangalore Bench of the Tribunal in the case of. M/s. Bearing Point Business Consulting (P) Ltd., in ITA No.1124/Bang/2011 vide order dated 21.12.2012 reported in [2013]33 taxmann.com 92. (vi) Order of the Bangalore Bench of the Tribunal in the case of. M/s. Intellinet Technologies India (P) Ltd., in ITA No.1237/Bang/2010 vide order dated 30.03.2012 reported in [2012]22 taxmann.com 28. It was therefore pleaded that directions may be given to the Ld.Revenue Authorities to take into consideration the adjustment towards working capital and risk. The Ld.DR on the other hand relied on the orders of the Ld.Revenue Authorities. 12.1 We have heard the rival submissions and carefully perused the materials on record. With respect to working capital adjustment, the Ld.Revenue Authorities have relied in the decision in the case M/s. Mobies India Ltd., in ITA No.211/Mds/2011 and further the Ld.Members of the DRP have relied in the observation of the Ld.TPO that the assessee has failed to demonstrate the requirements as per the ratio laid down in the case M/s. Mobies India Ltd. Further with respect to risk adjustment, the Ld.Members of the DRP relied on the observation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profitability below the risk free return. m) It is not sufficient to merely spell out risks, but, it has to be shown which risk was actually undertaken by the comparables and to what extent it affected the profitability. The taxpayer has not done so. In view of the same, the Ld.Members of the DRP had rejected the prayer of the assessee for granting working capital and risk adjustment. From the facts of the case, it appears that neither the assessee nor the Ld.AR had come out with any convincing materials to justify the claim made before the Ld.Revenue Authorities. However in the interest of justice, we are of the view that the objection raised by the Ld.AR is required to be reconsidered by the Revenue considering the intricacies of the business of the assessee. Hence we hereby remit the matter with respect to granting of working capital and risk adjustment back to the file of Ld.TPO for de-nova consideration, thereby affording one more opportunity to the assessee to present its case before the Ld.TPO on merits. 13. Further with respect to the most of the selection of comparable companies except in the EDS Segment we have held against the Revenue. In such circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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