TMI Blog2021 (3) TMI 1401X X X X Extracts X X X X X X X X Extracts X X X X ..... to pass the Arm s Length Price (ALP) test as provided u/s.92 of the Income Tax Act, 1961 (Act). In this appeal the disputes is with regard to addition made consequent to determination of ALP and consequent upward revision and adjustment made to the price at which international transaction was carried out by the Assessee with its AE in respect of Software development Services(SWD services). 3. There is no dispute that the Most Appropriate Method chosen for the purpose of comparison of the profit margin of the Assessee with that of the comparable companies was the Transaction Net Margin Method (TNMM) and the Profit Level Indicator (PLI) chosen for the purpose of such comparison was Operating Profit to Operating Cost (OP/OC). The OP/OC of the Assessee in the SWD services segment was as follows:- Description Amount Operating Revenue Rs.16,25,43,160/- Operating Cost Rs.14,06,95,730/- Operating Profit (OP) Rs.2,18,47,430/- Operating Profit to Cost(OP/OC) 15.52% 4. The TPO rejected the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,160 Shortfall bei Shortfall being adjustment u/s. 92CA Rs.1,59,43,443 5. The adjustment suggested by the TPO was incorporated by the AO in the draft order of assessment. The Assessee objected to the manner of determination of ALP by the TPO before the DRP. The DRP excluded some of the comparable companies chosen by the TPO and retained only three comparable companies viz., Persistent Systems Ltd., Persistent Systems Solutions Ltd., and Sasken Technologies Ltd. Aggrieved by the inclusion of the aforesaid three comparable companies the Assessee has filed this appeal before the Tribunal. The Assessee is also aggrieved by the exclusion of Evoke Technologies Ltd., CG Vak Software and Exports Ltd,. And RS Software Ltd., and has filed the appeal against the order of the AO. No other grounds were pressed for adjudication except the relief with regard to exclusion and inclusion of comparable companies, though several grounds of appeal and additional grounds of appeal had been raised by the Assessee in the grounds of appeal and application for raising additional grounds. 6. By way of additional ground No. 15 to 17, the Assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore it necessitates the functional examination of these companies for the purpose of inclusion or exclusion in the list of comparables. The Special Bench of this Tribunal at Chandigarh in the case of Quark Systems P. Ltd, (supra) has held that if a company is otherwise not found to be comparable with the assessee then simply it is included in the list of comparables in the TP study would not be considered as estoppel for raising an objection by the assessee for exclusion of such company for the purpose of determination of ALP. We therefore accept the plea of the Assessee, for admission of exclusion of the aforesaid three companies. 8. As far as the plea for exclusion of Persistents Systems Solutions Ltd., Persisten Systems Ltd., and Sasken Communication Technologies Ltd., is concerned,this Tribunal in the case of a software development service provider such as the Assessee for the very same AY 2011-12 in the case of Autodesk India Ltd. Vs. ACIT in IT(TP) A.No.156 220/Bang/2016 by order dated 21.12.2018 held that these three companies are not comparable companies. It is pertinent to mention that the very same thirteen companies chosen in the case of the Assessee in this appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osen this company as comparable company in its TP study and the TPO accepted this company as comparable company. The DRP suo motto excluded this company from the list of comparable companies. The reasons assigned by the DRP for excluding this company was (i) that the margin of this company was abnormally low as compared to other comparable companies and (ii) Expenses on consultancy charges increased by 1,118% which indicated that the low margins during the relevant period was due to peculiar circumstances. It is the plea of the Assessee before us that this company is functionally comparable as it was also a SWD service provider and that low margins cannot be the basis to exclude this company. It was submitted that the DRP has not spelt out as to how increase in consultancy charges resulted in peculiar circumstances prevailing in the case of this company. Our attention was drawn to a decision of the ITAT Bangalore in the case of M/S.Applied Materials India Pvt.Ltd. IT(TP) A.No.17/Bang/2016 IT(TP)A.No.39/Bang/2016 order dated 21.9.2016 for AY 2011-12 wherein this company was regarded as comparable and include as comparable. The learned DR relied on the order of the DRP. 10. We a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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