TMI Blog2021 (7) TMI 897X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in its ITES segment had been catering predominantly in export market to its AEs. Hence, it would be just and fair to have comparable companies which are also having more than 75% of its sales derived from export market. Hence, we hold that the filter adopted by the ld. TPO in this regard would be a valid filter. Rejection of filter which was applied by the ld. TPO wherein companies having related party transactions more than 25% of sales - We are unable to persuade to accede to these arguments of the ld. AR in view of the fact that any comparable company having more than 25% of related party transactions would be able to have advantage in prices negotiated between the controlled entities (that is related parties) and it becomes controlled transactions and that such negotiated advantageous pricing mechanism would certainly have a major bearing on the PLI of the said comparable company that is why the spirit of provisions of Chapter X of the Act mandate that a controlled transaction should be always comparable with uncontrolled transaction for the purpose of determination of arm s length price. Hence, it would be just and fair to apply a filter by rejecting comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal No.CIT(A)-56/TP/DCIT-10(1)/2015-16/179-C dated 15/03/2017 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 19/06/2014 by the ld. Dy. Commissioner of Income Tax-10(1), Mumbai (hereinafter referred to as ld. AO). ITA No.7336/Mum/2019 (A.Y.2010-11) 2. At the outset, we find that assessee appeal is delayed by 917 days. We find that the assessee had filed the appeal after delay of 917 days in order to claim deduction on account of education cess based on the subsequent decision of the Hon ble Rajasthan High Court in the case of Chambal Fertilizers which was followed by various Tribunals across the country in favour of the assessee. This subsequent decision of Hon ble Rajasthan High Court was stated to be sufficient cause by the ld. AR and by the assessee in its affidavit. In our considered opinion, this is not a sufficient cause which would explain the delay in favour of the appeal by the assessee. We hold that the assessee had merely adopted wait and watch approach and had waited for the favourable decision from a higher forum, on the impugned issue and allowability of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DCIT 45 SOT 172, the ITAT Mumbai in the case of CAIT VS M/s Hapag Lloyd Global Services P Ltd (TS-47-ITAT-2013(Mum)-TP) and the ITAT Delhi in the case of M/s Nokia India (P.) Ltd Vs DCIT Circle -13(1), New Delhi (52 taxmann.com 492 (Delhi - Trib.) 2C) Whether on the facts of the case and in law, the Ld CIT (A) erred in rejecting the quantitative and qualitative filter of rejection of consistent loss making companies applied by the TPO for selecting the comparables for the purpose of determining the ALP of the transaction which has been held to be valid by the ITAT Delhi in the case of M/s Sony India (P) Ltd VS DCIT (110 TTD 448) which has been further upheld by the decision of ITAT Mumbai in the case of Syscom Corporation Ltd Vs ACIT (TS-195-ITAT-2013 (Mum). 3. The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal. 4. The appellant prays that the order of CIT(A) set-aside and that of the assessing officer be restored. 4. We have heard rival submissions and perused the materials available on record. At the outset we find from the perusal of the aforesaid grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpanies engaged in Information Technology Enabled services (ITES). Based on the search process adopted in the TP Study, the assessee arrived at a set of fifteen functionally comparable companies having an average arithmetic mean of 14.27%. 4.5 Before the TPO, without prejudice to use of multiple year data, based on the request made by the learned TPO, the assessee updated the margins of TP Study comparables using single year data for FY 2009-10, on a without prejudice basis for its arguments on contemporaneous documentation, the assessee arrived at the following set of twelve comparables having a mean margin of 10.87% (excluding three comparables on account of unavailability of data). Sr. No Name of Company FY 2009-10. OP / TC (%) 1 A O K In-House B P O Services Limited 0.11 2 Aditya Birla Minacs Worldwide Limited 7.92 3 B N R Udyog Limited 23.77 4 Cameo Corporate Services Limited 7.84 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6/- in respect of provision of back office support services and proposed the adjustment of ₹ 3,10,22,558/- to the said international transaction by applying (a) TNMM as MAM ; (b) OP/OC as PLI ; (c) by applying single year data pertaining to A.Y.2010-11 as per Rule10B(4) of the Rules. 4.9. We find that the ld. CIT(A) had rejected the following three filters adopted by the ld. TPO:- (a) Companies having export sales less than 75% of its total Revenue (b) Companies where related party transactions are more than 25% of operating revenues (c) Companies which are persistently loss making 4.10. We find that the ld. CIT(A) had however, addressed the inclusion and exclusion of various comparables as under:- Sr. No. Name of the Company NCR % FY 2009-10 1 Accentia Technologies Ltd 43.06 2 Cosmic Global Limited 14.97 3 Infosys B P O 31.21 4 Informed Technologies India Ltd. 26.15 Arithmetic Mean 28.85 (a) Accentia Technologies Ltd., - EXCLUDED (b) Infosys BPO Ltd., - EXCLUDED (c) AOK In-House BPO Services Ltd INCLUDED (d) Cameo Corporate Services Ltd., - INCLUDED (e) Delta Services India Pvt. Ltd., - INCLUDED (f) In House Provisions Ltd., (Vans Informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of assets, operating income to sales etc are less affected by transactional differences. Accordingly, it was argued that the enterprises catering to domestic market or to overseas market would still be comparable under this method and the absence of foreign exchange transactions or lack of overseas clients does not affect the comparability. 5.2. We find that assessee is mainly into operations being a low risk captive service provider providing back office support services in the nature and operations of technology, oversight services and other share services to its associated enterprises. It is not in dispute that assessee s ITES segment is mainly catering to export market. Hence, there is absolutely no harm in ld. TPO applying the filter by rejecting the companies having export sales less than 75% of its total sales. The arguments of the ld. AR that the comparable companies having more domestic sales than the export sales could also be considered as comparable as per Rule 10A(a) of the Rules could be appreciated in the event, where the percentage of export sales and domestic sales are equal or the differences between them are not huge. As stated earlier in the instant case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ernational transaction which alone, in his opinion, would provide correct reflection to the extent to which related party transactions can commence PLI used for TP analysis. He argued that since PLI applied by the assessee is OP/OC, it would be pertinent to apply similar base i.e. operating profit to sales or cost to determine the threshold of related party transactions. He argued that companies having related party transactions less than 10% alone should be excluded. He reiterated his argument by stating that as long as the said comparable company is functionally comparable with the functions performed by the assessee company, the percentage of related party transactions in the said comparable company would have no major bearing on the PLI of the comparable companies. 6.2. We are unable to persuade to accede to these arguments of the ld. AR in view of the fact that any comparable company having more than 25% of related party transactions would be able to have advantage in prices negotiated between the controlled entities (that is related parties) and it becomes controlled transactions and that such negotiated advantageous pricing mechanism would certainly have a major bearing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion where due to heavy investments made in the initial year and claim of depreciation thereon, among other factors, the assessee is bound to incur losses and therefore, assessee indeed is justified in comparing the companies which had incurred losses during the year under consideration. Hence, the loss making company per se cannot be eliminated for the purpose of comparability. It has to be seen depending upon the facts and circumstances of each and every case. We hold that this filter applied by the ld. TPO would not be a valid filter for the purpose of comparability of benchmarking analysis vis- -vis assessee company. Hence, we hold that the ld. CIT(A) had rightly rejected this filter applied by the ld. TPO. Accordingly, the ground No.2C raised by the revenue is dismissed. 8. In view of the aforesaid observations, we hereby direct the ld. TPO to recompute the arthimetic mean margin of the comparable companies in the light of aforesaid observations on the applicability of filters and recompute the arm s length price accordingly. 9. The ground Nos. 1, 3 4 raised by the Revenue are general in nature and does not require any specific adjudication. 10. In the result, appeal ..... X X X X Extracts X X X X X X X X Extracts X X X X
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