TMI Blog2023 (2) TMI 1103X X X X Extracts X X X X X X X X Extracts X X X X ..... .08% should be considered.TPO has incorrectly treated Interest and Miscellaneous Income as operating income and loss on sale of assets as operating expense. In doing so, the TPO failed to appreciate that these are non-operating items and cannot be included. Axis-I T T Ltd. (13.13%) - TPO wrongly adopted margin of 13.13% in its order dated 01 June 2015 while giving effect to CIT(A) order. It is submitted that corrected margin should be computed after excluding non-operating income/expenses like dividend, interest, liabilities written back, provision for bad debts, prior period expenses. TPO shall re-compute the profit margins. Risk adjustment to the Appellant - We direct that the assessee shall demonstrate the risk involved, enc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 27,085,817. 4. The Ld. AO/ Ld. TPO/ Ld. CIT-(A) erred on facts and in law in the assessment of the arm s length price of the Appellant s international transactions from associated enterprises in the following manner. 4.1 The Ld. AO/ Ld. TPO/ Ld. CIT-(A) erred on facts and in law to modify, based on his subjective grounds and presumptions, the comparability analysis conducted by the Appellant for determining the arm s length price in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ( Rules ) as well as fresh search 4.2 The Ld. AO/ Ld. TPO/ Ld. CIT-(A) erred in rejecting the comparable companies set adopted by the Appellant on the basis of additional/ modified quantitative filters selected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n law in applying the amended provision as per the Finance Act 2009 instead of the provision regarding the arm s length range applicable to the financial year 2008- 09. The TPO ought to appreciate that even a price which varies 5% in either direction of the arithmetic mean margins of the comparables may be considered as an arm s length prices per the proviso to section 92C(2) 6. That the Ld. AO/ Ld. CIT-(A) erred in facts and in law in charging interest under section 234B and 234D of the Act 7. That the Ld. AO/Ld. CIT-(A) erred in facts and in law in withdrawing interest under section 244A of the Act. 8. That on the facts and circumstances of the case and in law, the Ld. AO has erred in initiating penalty proceedings under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground of appeal, the assessee has challenged following actions of the TPO/ ld. CIT(A): Erroneous inclusion of one comparable and erroneous exclusion of two comparables. The same is discussed in detail below: Erroneous inclusion of one comparable: (a) Cosmic Global a) Cosmic Global Limited It was argued that this comparable should be rejected for the following reasons: Very low BPO revenue- The company, during the relevant year, has earned total revenue of Rs.7.37 crores out of which revenue of Rs.6.99 crores is from translation charges, Rs.9.90 lakhs from medical transcription and consultancy services and only a balance of Rs.27.76 lakhs is from BPQ services. Hence, it fails the Ld. TPO s filter of revenue from IT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ually incorrect as below: i. Allsec has 76.75% of export sales and hence, clears the export sales filter. Total operating revenue is Rs.106.22 cr. and total export is Rs.81.53 cr. ii. Allsec s operating revenue has increased in FY 2008-09 as compared to FY 2007-08 (to Rs.106.22 cr. from Rs.98.27 cr.). Hence, the company does not have diminishing revenue. Even otherwise diminishing revenue cannot be a valid filter if functional profile of the company remains same and there are no exceptional circumstances. 12. We find that the TPO has considered the financial over the period of three years and hence rejected this as a comparable. We decline to interfere with the order of the ld. CIT(A) who affirm the order of the TPO. Grou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sk adjustment as a general rule cannot be allowed unless it is clearly shown that the comparable had actually undertaken such risk and how the same materially affect the margins. The ld. CIT(A) relied on the revised OECD Guidelines 2010. The ld. CIT(A) held that mechanical adjustment cannot be made to the margins of the comparable without knowing which risk was taken by the entity concern and how its profitability was affected. The ld. CIT(A) held that probability of the risk and certainty of the risk are two different aspect and cannot be equated for the purpose of adjustment. 18. Having considered the issue, we direct that the assessee shall demonstrate the risk involved, encountered before the TPO and the TPO shall after examining the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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