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TMI Blog2012 (4) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... not comparable with the assessee's company - If a reasonable accurate adjustment for the difference to eliminate material effect of the differences cannot possibly be made, then such comparables (uncontrolled) are to be rejected - IT Appeal No. 594 (Hyd.) of 2009 - - - Dated:- 25-1-2012 - H.S. Sidhu, Chandra poojari, JJ. T.S. Ajay for the Appellant. N.H. Nayak for the Respondent. ORDER 1. This appeal is directed against the order of the CIT(A) dated 19-2-2009 and pertains to the assessment year 2004-05. The assessee raised the following grounds before us:- 1. The CIT(A) has erred in law and is the facts and circumstances of the case in excluding the results of loss making companies for the purpose of determining the average profit margin under the TNMM method, though they have been admitted and included as comparables. 2. The CIT(A) ought to have noted and appreciated that these companies were part of the comparables admitted by the CIT(A) himself and has not been objected to, by the department also and hence have become final and ought to have been included for arriving at the average profit margin. The CIT(A) ought to have noted that the details pert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arged on s.11,07,93,375/-, the difference of Rs.95,87,498/- was adjusted u/s 92CA of the Act. Against this, the assessee went in appeal before the CIT(A). 3. During the first appellate proceedings, the learned authorized representative of the assessee furnished eight additional comparables vide its letter dated 7-5-2008 on the basis of the total sixteen comparables (including eight comparables selected by the TPO), the average PLI was computed at 11.01% which was less than the PLI shown by the assessee. The CIT(A) forwarded the additional comparables to the TPO and the TPO submitted his reports vide his letters dated 5-3-2008, 19-11-2008 and 22-1-2009. The TPO's reports were also forwarded to the assessee who made its submissions vide letters dated 15-9-2008, 16-12-2008, 13-02-2008 and 17-2-2008. The CIT(A) later observed that the data of earlier years were not required to be considered if it was not shown by the assessee that it had any by the assessee that it had any influence on the determination of the ALP of the transactions involved by placing reliance in the case of Aztec Software Technology Services Ltd. v. Asstt. CIT [2007] 107 ITD 141 (Bang.) (SB). The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the current year. These expenses cannot be treated as regular operating expenses relatable to the transactions of the current year. This being so, the CIT(A) placing reliance on the decision of Delhi ITAT in the case of Sony India (P.) Ltd. v. Dy. CIT [2008] 114 ITD 448 held that the result of M/s Allsec Technologies Limited cannot be considered as comparable company for determining the average PLI. The same view was taken in the case of Progeon Limited, Flextronics Software Systems, Tulsyan Technologies Limited and Transworks Information Services Limited and data of these companies are not considered for the purpose of comparability while determining the average PLI. Further, he rejected the other comparables viz., Genesis International Corporation Limited, Kirloskar Computer Services Limited and Pentasoft Technologies Limited on the reason that they are predominantly functioning in a different way. Genesys International Corporation Limited is a provider of IT Solutions, Geospatial Services and Engineering Services and 68% of the operating revenue was derived from the GIS based services segment. Kirloskar Computer Services Limited has three segments namely (1) ITES- domestic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Net Soft GIS India Ltd. 16.53% 4. Progeon Ltd. -4.22% 5. Tricom India Ltd. 45.87% 6. Vishal Information Tech. Ltd. 48.32% 7. Spanco Telesystems Solutions Ltd. 39.05% 8. Wipro BPO Solutions Ltd. 30.63% 9. C.S. Software Enterprise Ltd. 12.81% 10. Genesys International Corpn Ltd. 14.87% 11. Kirloskar Computer Services Ltd. 12.49% 12. Mercury Outsourcing Managaement Ltd. 5.70% 13. Pentasoft Technologies Ltd. 19.79% 14. Flextronics Software Systems - 33.04% 15. Tulsyan Technologies Ltd. - 16.71% 16. Transworks Information Services Ltd. -12.18% Arithmetic mean 11.01% Less working capital adjustment 2.00% Adjusted Arithmetic Mean 9.01% Lower Range 3.56% Upper Range 14.46% Knoah indra's margin as per TP order 15.76% Adjustment Nil" According to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elected, if the selection of "comparables", for bench-marking international transactions. This selection of comparables should be based on functional, asset and risk analysis of both the parties and the transactions. The provisions of section 92C also provide scope for carrying out adjustments in cases where there are some differences or variations to make the transactions, commercially comparables, for the purpose of bench marking. In other words, an uncontrolled transaction selected for bench-marking should be adjusted by employing certain techniques like "FAR" analysis, to be selected on its peculiar factual matrix, for the purpose of enabling comparison of the same with the controlled international transaction so that the differences or variations are ironed out or minimised. The underlying principle being that only likes can be compared with the like. The adjustments are suggested to achieve the object of testing and trying to see if both the parties or/and the transaction are similar or merely similar. At times, even after adjustments the transaction/s or parties sought to be compared may not be identical or there might not be possibility of adjustment. This is a very subject ..... X X X X Extracts X X X X X X X X Extracts X X X X
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