9911796707
TMI Blog2014 (3) TMI 891X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices cannot be further bifurcated or classified as BPO and KPO services for the purpose of comparability analysis. If the assessee company, on the basis of its own functional profile, is found to have provided to its AE the low-end back office support services like voice or data processing services as a whole or substantially the whole, the companies providing mainly high-end services by using their specialized knowledge and domain expertise cannot be considered as comparables. If the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs. We, therefore, direct that these two entities be excluded from the list of 10 comparables finally taken by the AO/TPO as per the direction of the DRP. Selection of comparable – Whether a company earning high profit margin to be included in the list of comparable – Held that:- the answer to this question will depend o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th price of an international transactions?" 2. The assessee in the present case is a company incorporated in India on 19-11-2003. It is a wholly owned subsidiary of Maersk GSC Holdings A/S, which in turn is a downstream subsidiary of APMM Group ("Maersk Group). It is engaged, inter alia, in the business as shared service centre and renders transaction processing, data entry, reconciliation of statements, audit of shipping documents and other similar support services. It also renders I.T. services such as process support, process optimization and technical support services. The return of income for the year under consideration was filed by it on 30-9-2008 declaring total income of Rs. 34,14,980/- under the normal provisions of the Act and book profit of Rs. 12,29,06,881/- computed u/s 115 JB of the Act. In the said year, it had carried out, inter alia, the international transactions of providing I.T. enabled services to its Associated Enterprises (AEs) for the aggregate value of Rs. 117,56,19,974/-. The nature of such services was stated to be transaction processing, data entry, accounting and other support services. During the course of assessment proceedings, a referenc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax payer based on the data pertaining to the FY 2007-08, have not been selected." 5. Keeping in view the above material defects pointed out by him, the TPO rejected the TP report submitted by the assessee treating the same as un-reliable and in-correct and proceeded on his own to determine the ALP of the relevant international transactions entered into by it. In this regard, he noted that the assessee company was operating with more than 2000 employees out of the State of Art facility and was providing support services to its AEs such as documentation, finance, operations, logistics, global information systems etc. According to him, these services were in the nature of knowledge based services and thus were liable to be characterised as Knowledge Process Outsourcing (KPO) services. He noted that the assessee was rendering mainly logistic outsourcing services and business analytic services to its AEs which involved the transfer of knowledge intensive business process that required significant domain expertise. He observed that for global corporations looking to move their higher-end research like market research and equity research, analytical based services, engineering desig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry of KPIT Cummins Infosystems Ltd. As per the information and annual report submitted by the company for the FY 2007-08, the company fails 25% RPT filter. 9. Maple E- solutions Ltd. The company is not into KPO services and thus the same is not considered as a comparable. 10. R System International (segmental) The company is not into KPO services and thus the same is not considered as a comparable. 10. Shreejal Info Hubs Ltd. The company was earlier known as Ask Me Info Hubs Ltd. The company fails 75% export earning filter as it does not have any export for the FY 2007-08. Thus the company is not considered as a comparable. 11. Spanco Telesystems and Solutions Ltd. (Segmental) Now the company is known as Spanco Ltd. The Annual Report is available for the FY 2007-08. This BPO segment is not into KPO services and thus the same is not considered as a comparable. 12. Triton Corp Ltd. The company is into KPO services and qualifies all the filters applied by the TPO. Thus the same is considered as a comparable. 7. The TPO also considered the various filters applied by the assessee and found only some of them to be appropriate for the following reasons:-- Sl. No. Particu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... profile, Director's report and other information available in the database) This is to be seen case by case. TPO tried to obtain maximum information using powers u/s 133(6). If sufficient information is not obtained, the decision is taken based on the information available in the Public domain. 8. In addition to some of the filters found to be appropriate by him as discussed above, the TPO considered some additional filters or criteria which, according to him, would lead towards selecting proper comparables and finally applied the following filters or criteria in searching for comparables:-- "- Companies whose data is not available for the FY 2007-08 were excluded and the data for the FY 2007-08 has been considered for the period from 01-04-2007 to 31-03-2008. - Companies with IT enabled service income of less than Rs. 10 Cr and more than 250 crores were excluded - Companies whose IT enabled service revenue is less than 75% of the total operating revenues were excluded - Companies who have more than 25% related party transactions (sales as well as expenditure combined) of the operating revenues were excluded - Companies who have less than 75% of the revenues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f non-operating nature having nothing to do with the operations of the comparables were excluded by him for the purpose of considering the operating revenue and operating expenses. Similarly, extra-ordinary expenses/income which were non-recurring in nature such as donations, preliminary expenses etc. were not considered by him as operating expenses or operating income. Accordingly, the arithmetic mean of OP/TC of seven comparables selected by him was worked out by the TPO at 47.74% and after allowing the working capital adjustment at 2%, he worked out the adjusted arm's length mean margin at 45.74%. Applying this arm's length margin at 45.74% to the operating cost of Rs. 104,44,80,271/- submitted by the assessee in its TP report, the arm's length price of the international transactions between the assessee and its AE involving provision of IT enabled services was determined by the TPO at Rs. 152,22,25,547/- and since the price charged by the assessee for the said transactions was Rs. 117,83,81,799/-, the difference of Rs. 34,38,43,748/- was treated by the TPO as the transfer pricing adjustment required to be made in the case of the assessee. 10. In addition to the I.T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4099000 95459000 23.05% 22. V.G.L Softech Ltd. 42437512 36812017 5625495 15.28% 23. Wipro Ltd. (Wipro Technologies Segment) 112762000000 87713000000 25049000000 28.56% 11. The arithmetic mean of the OP/TC of the above comparables selected by him was worked out by the TPO at 24.99% and after applying the same as average profit margin of the comparables, without allowing any working capital adjustment, to the operating cost of Rs. 12,05,35,098/- as submitted by the assessee in the TP study report, he determined the ALP of international transactions of the assessee company with its AEs involving provision of I.T. services at Rs. 15,06,56,819/-. Since the price charged by the assessee to its AEs for these international transactions was Rs. 13,96,31,210/-, the difference of Rs. 1,10,25,609/- was treated by the TPO as transfer pricing adjustment required to be made in the case of the assessee in respect of I.T. services rendered to its AEs. 12. In the draft assessment order, the A.O. proposed to make, inter alia, the T.P. adjustments of Rs. 34.38 crores and 1.10 crores determined by the TPO in respect of the international transactions of the assessee company with its AEs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly Triton Corpn. as taken by the TPO was there in the list of comparables selected by the assessee itself. As regards the remaining four comparables selected by the TPO, which were objected by the assessee, the DRP accepted the objection of the assessee in respect of two comparables namely Acropetal Technologies Limited and Coral Hubs Limited and directed exclusion of the same from the comparables for the following reasons :-- "Acropetal Technologies Ltd.-- It has been pointed out by the assessee in its submission wherein the Annual Reports of the comparables have been filed, that this comparable fails the export earning filter of 75% in respect of ITES. This has been seen and found correct. Therefore, this comparable fails the TPO's own filter and cannot be held comparable. Coral Hubs Limited - It is seen that this comparable has very low employee costs (2.93%) whereas it has very high costs on account of vendor payments and data charges, suggesting outsourcing as its business model. In view of these functional differences, the same is rejected as comparable:" 14. The objection of the assessee regarding other two comparables selected by the TPO namely Eclerx Ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be comparable." 15. The three comparables selected by the TPO namely Mold-Tek Technologies Ltd., M/s Coral Hubs Ltd. and M/s eClerx Services Limited were also objected by the assessee before the DRP on the basis of their high profitability. This objection of the assessee was not found sustainable by the DRP observing that high and low margins both reflect the industry profitability especially when they are acceptable on functional similarity. It was also observed by the DRP that as the average mean of a fair number of companies is being considered for comparability analysis to arrive at the ALP margin, the super profit of an individual company cannot be objected to if it is otherwise functionally comparable. It was also noted by the DRP that omission only of high profitability comparables as outliers would be addressing only one end of the spectrum which is not correct. It was observed that the Income Tax Act in any case provides for an arithmetic mean and not median range of profitability. 16. The DRP then proceeded to deal with the objections of the assessee in respect of TP adjustment of Rs. 1.10 crores proposed in respect of provision of I.T. services rendered by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a much bigger market risk viz., single customer risk. As the taxpayer is dependent on its AE its entire existence is dependent on it. If the AE runs out of business or if AE's business gets reduced substantially, the taxpayer's business will also get adversely affected. The taxpayer being a captive service provider cannot even look for other customers. Thus, in fact the taxpayer runs a greater risk than an average independent entity which can always look for other customers or other markets. Thus, there is more risk in the case of tax payer who is dependent on a single customer when compared to comparables who may not depend on single customer. At the time of entering into contract with its associated enterprise, the tax payer is not assured of any business and also it is not guaranteed any steady increase in the business. There are two components of a single customer risk which have to be kept in view: i. The loss of realization of the debt for the services already rendered from the single customer if the customer goes into liquidation or bankruptcy. ii. The loss of future revenues if the single customer either goes into bankruptcy or liquidation or terminates the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us decisions of the Tribunal wherein a similar claim of the assessee for risk adjustment was considered by the Tribunal and held finally, for the following reasons given in its order, that no risk adjustment could be allowed to the assessee:-- "- As discussed above, the taxpayer has also undertaken several risks. Therefore, it is correct to say that it is a risk mitigated entity. - The taxpayer is totally dependent on the AE for business. Thus the taxpayer takes the risks associated with heavy dependence on a single customer, In common business parlance it is known as 'single customer risk'. - The AE is exposed to the market risk and any fluctuation in the business conditions of the AE affect the contractual terms between the AE and the taxpayer. Thus even if independent comparables undertake some risk, the taxpayer also had to undertake risks - Different comparables can have different risk profiles and different profit margins. The proviso to Sec. 92C(2) of the Act provides for adopting arithmetical mean of the different prices. This provision neutralizes the effect of difference in the risk profile, if any between the tax payer and the comparables as realized ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 69/- to work out the ALP of the international transactions of the assessee with its AEs at Rs. 149,16,85,678/-. Since the price charged by the assessee to its AEs for such services was Rs. 131,80,13,009/-, the difference of Rs. 17,36,72,669/- was added to the total income of the assessee on account of TP adjustment in the final assessment made by the A.O. vide an order dated 31-10-2012 passed u/s 143(3) r.w.s. 144-C(1) of the Act. Aggrieved by the same, the assessee has preferred this appeal before the Tribunal. 23. In its appeal, the assessee has raised as many as 11 grounds out of which ground No. 1 is general in nature seeking no specific decision. Ground No. 2 challenges the selection of comparables by the TPO as approved by the DRP. In its TP study report, the assessee had selected thirteen comparables out of which only one comparable was accepted by the TPO. After rejecting the TP study of the assessee, the TPO proceeded to do his own exercise of TP analysis and keeping in view the nature of services rendered by the assessee as understood by him and after analyzing the database, annual report etc., he selected seven comparables including the one selected by the assessee name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through the submissions made by the assessee company in this regard before the TPO at page 211 & 212 of his paper book to point out that the brief overview of the assessee's back office support services was given therein as under:-- "Brief overview of Assessee's back office support services: The assessee is a captive service provider primarily engaged in providing back office support services to its AE i.e. APMM. The activities primarily comprises of low end data entry, transcription, reconciliation, consolidation, co-ordination, preparation, processing and review of shipping documents such as bills of lading, etc. and similar support services. Assessee acts as a contract service providers carrying out limited low end functions based on instructions, standardized processes, data, specifications, process notes and statement of work all of which are historically provided by its AE. The activities performed by the assessee are thus merely supportive and auxiliary in nature. For ease of understanding attached is the flow chart explaining the work process of documentation activity in brief (Please refer Exhibit 1). The activities primarily involves the informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "KPO involves the transfer of knowledge intensive business processes that require significant domain expertise, to other geographic locations. For global corporations looking to move their higher-end research like market research and equity research, analytical based services, engineering design, IPR, legal services, remote education and publishing, India is currently the location of choice." KPO- A new breed of high end knowledge based BPO called Knowledge Process Outsourcing (KPO,) emerged. This comprises of vendors providing higher end research and analytic based services in traditional service lines as well as new business areas. Areas for KPO include healthcare - intellectual property rights research, design and development for automotive and aerospace industries and animation and graphics in the entertainment sector. (please refer IT enabled Services definition as provided in the CD,) (Please refer Exhibit 3) We respectfully submit that we object to the characterization of the Assessee as a KPO. Merely because the services performed by the Assessee pertain to the logistics industry we request your goodself not to conclude that the services performed by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , was completely ignored by the TPO and he treated the assessee as KPO without giving any convincing reasons to justify the same. He submitted that similarly four additional filters were arbitrarily applied by the TPO to remove the comparables which otherwise met FAR analysis just to suit and support the huge TP adjustment suggested by him. He submitted that the nature of functions of the assessee or the FAR analysis made by the assessee was not disputed by the TPO and the findings given by him about the nature of activities of the assessee on page 8 to 9 of his order to treat the assessee as KPO are contrary to the nature of activities of the assessee discussed by the TPO himself on page 2 of his order. 28. Our attention was invited by Shri Porus Kaka to the relevant portion of the submissions made by the assessee before the DRP at page No. 116 & 117 of the paper book to point out that the erroneous categorization of the assessee as KPO was challenged by the assessee by making the following submission: Erroneous categorization as KPO * The Assessee's back office support services primarily comprises of low end data entry, transcription, consolidation, co-ordination, prepara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of knowledge by the assessee nor any research and analysis involved in providing the said services. He invited our attention to para 2.1.3 of the DRP's order to show that the case of the assessee of low end service provider still was not fully accepted by the DRP without giving any cogent or convincing reasons. He pointed out that the DRP, however, held that the assessee could not be considered as KPO going by the qualification and profile of its workforce. He contended that the objection of the assessee for inclusion of two comparables on the basis of functional difference, however, was not considered by the DRP specifically. 30. Shri Porus Kaka submitted that none of the services rendered by the assessee is in the nature of logistics outsourcing services and business analytic services and the finding given by TPO to this effect is contrary to the business profile of the assessee company given by the TPO himself on page No. 2 of his order. He contended that even the qualification and profile of the workforce employed by the assessee established the fact that the assessee is providing low end services which cannot be characterized as KPO services. 31. Shri Porus Kaka contende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cost but helps the clients to increase sales and reduce risk by enhancing efficiencies and by providing valuable insights that empower better decisions. It was also clarified that the company therefore cannot be compared to a BPO or an IT offshoring company. Shri Porus Kaka also took us through the note given by the company on KPO placed at page No. 173 of his paper book and submitted that the contents thereof clearly make out the distinction between BPO and KPO. The said contents are extracted below:-- "Knowledge Process Outsourcing (KPO) The global business environment is becoming increasingly information and knowledge intensive. In such an environment, business entities have realized the importance of and opportunity in assimilating data, analyzing trends, creating knowledge and harnessing this knowledge for running business operations efficiently thereby contributing to growth and profits. The evolution and maturity of the Indian BPO sector gave rise to Knowledge Process Outsourcing (KPO). The term KPO has generally come to refer to such activities and process solutions supplied by the service provider that essentially involve information searching, analyzing, inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therein which are provided mainly with the assistance or use of the information technology. He pointed out that the services so prescribed by the CBDT include back office operations and support centre, which are the services rendered by the assessee company in the present case. He then referred to the definition of "knowledge process outsourcing services" given in clause (g) of Rule IOTA to mean certain specified business process outsourcing services which are provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skill. He contended that the services so specified by the CBDT do not include back office support services as rendered by the assessee company in the present case. He contended that the services rendered by the assessee also do not require application of knowledge and/or advance analytical and technical skill. He contended that these provisions given by the CBDT in safe harbour rules thus clearly show that there is a clear distinction between KPO services and BPO services and the back office support services rendered by the assessee fall within the category of BPO services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ables have to be better than larger and what matters is the quality of sample/comparables and not the size/quantity. He contended that the comparability for this purpose has to be seen on the basis of FAR analysis and the relevant Rule 10B(3)(ii) allows only reasonably accurate adjustment to be made to eliminate the differences, if any. He contended that in the transfer pricing exercise, analysis has to be qualitative and not quantitative. He also contended that the broad characterisation of BPO and KPO services made by the Tribunal in the case of Willis Processing Services (I) P. Ltd. (supra) as ITES, based on the larger size of sample, is not in accordance with the TP regulations prescribed in the relevant Rule and thus the view taken in the said case has not been followed even by the other co-ordinate Benches of the Tribunal. 37. Reference was made by Shri Porus Kaka to section B.3.1 of the OECD transfer pricing guidelines issued in July, 2010 and our attention was drawn to paragraph Nos. 2.68 to 2.75 contained therein explaining the comparability standard to be applied when TNMM is followed. The said paragraphs read as under:-- "2.68 A comparability analysis must be per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r variation of operating expenses across enterprises. Second, net profit indicators can be influenced by some of the same factors, such as competitive position, that can influence price and gross margins, but the effect of these factors may not be as readily eliminated. In the traditional transaction methods, the effect of these factors may be eliminated as a natural consequence of insisting upon greater product and function similarity. Depending on the facts and circumstances of the case and in particular on the effect of the functional differences on the cost structure and on the revenue of the potential comparables, net profit indicators can be less sensitive than gross margins to differences in the extent and complexity of functions and to differences in the level of risks (assuming the contractual allocation of risks is arm's length). On the other hand, depending on the facts and circumstances of the case and in particular on the proportion of fixed and variable costs, the transactional net margin method may be more sensitive than the cost plus or resale price methods to differences in capacity utilisation, because differences in the levels of absorption of indirect fixed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase, the range may not include points representing the profits of independent enterprises that are affected in a similar manner by a unique factor. The use of a range, therefore, may not always solve the difficulties discussed above. See discussion of arm's length ranges at paragraphs 3.55-3.66. 2.74 The transactional net margin method may afford a practical solution to otherwise insoluble transfer pricing problems if it is used sensibly and with appropriate adjustments to account for differences of the type referred to above. The transactional net margin method should not be used unless the net profit indicators are determined from uncontrolled transactions of the same taxpayer in comparable circumstances or, where the comparable uncontrolled transactions are those of an independent enterprise, the differences between the associated enterprises and the independent enterprises that have a material effect on the net profit indicator being used are adequately taken into account. Many countries are concerned that the safeguards established for the traditional transaction methods may be overlooked in applying the transactional net margin method. Thus where differences in the char ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the guidelines, where it is possible to determine that some uncontrolled transactions have a lesser degree of comparability than others, they should be eliminated. He also referred to para 3.57 of the guidelines wherein it is stated that if the range of comparables includes a sizeable number of observations, statistical tools that take account of central tendency to narrow the range (e.g. the interquartile range or other percentiles) might help to enhance the reliability of the analysis. He also referred to para 3.59 of the OECD guidelines wherein it is suggested that where the application of the most appropriate method produces a range of figures, a substantial deviation among points in that range may indicate that the data used in establishing some of the points may not be as reliable as the data used to establish the other points in the range or that the deviation may result from features of the comparable data that require adjustments. It is suggested that further analysis of those points in such cases may be necessary to evaluate their suitability for inclusion in any arm's length price. 40. Reference was made by Shri Porus Kaka to section A.7.3 of the OECD guidelines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hould be compared in order to treat the same as comparables for the purpose of transfer pricing analysis. He relied on the decision of Hon'ble Supreme Court in the case of DIT (International Taxation) v. Morgan Stanley and Co. Inc. [2007] 292 ITR 416 wherein the Hon'ble Apex Court emphasized the significance of functions performed and risks assumed by the enterprise in undertaking the transfer pricing analysis. He contended that comparability should be based on the conclusion drawn from the functional analysis of the enterprise and it should be a backdrop of benchmarking and determining the arm's length price. He argued that the parameters for taking an un-controlled transaction as comparable to international transaction are provided in Rule 10-B(2) and as held by the Bangalore Special Bench of ITAT in the case of Aztec Software and Technology Services Ltd. v. ACIT 107 ITD 141 (Bang.)[SB], this criteria should form a basis for judging the comparability, whatever be the methodology chosen for the purpose of determination of ALP. He also relied on the decision of Delhi Bench of ITAT in the case of Mentor Graphics (Noida) Pvt. Ltd. v. DCIT, 18 SOT 76 (Delhi) wherein it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... KPO & BPO 1. Process: It' is s not a simple case of the 'K' replacing the 'B'. KPO involves high-end processes like valuation and, investment, research, patent filing, legal and insurance claims processing, amongst others. 2. Focus: Unlike conventional BPO where the focus is on process expertise, in KPO, the focus is on knowledge expertise. 3. Specialisation: The difference lies in domain specialization. BPO employees do not generally require specialized knowledge. Customer care executives at a BPO require good knowledge of the English language, the ability to be articulate and possess basic computer kills. On the other hand, a KPO organisation specializing in equity or financial analysis for example, can employ highly qualified professionals who possess high-end knowledge of accounts and finance. S/he should hold MBA or a CA qualification. 4. Driving Force: While KPO organizations are knowledge-driven, BPOs are process-driven. 5. Activities: KPO involves off shoring of knowledge intensive business processes that demand specialised expertise. This delivers high value to organisations by providing much required business expertise. A few examples of KPO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act to explain and define the term "computer software" for the purpose of Explanation 2(1)(b) of section 10A, Explanation 2(1)(b) of section 10-B and Explanation (b) of section 80HHE of the Act and the same cannot be extended or applied to treat the BPO as KPO. He contended that the said notification is to be read in the context in which it is issued and the same, issued on 26-9-2000 by the CBDT, cannot be applied to decide the issue relating to transfer pricing as the provisions relating to transfer pricing were not even in the statute when the said notification was issued by the CBDT. 47. The ld. CIT (DR) Shri Ajeet Kumar Jain submitted in his reply that the characterisation of the services rendered by the assessee company is required to be done in order to ascertain whether it is a BPO or KPO or something in between. In this regard, he invited our attention to the executive summary given in the TP study report submitted by the assessee at page 62 of the paper book and pointed out that the services provided by the assessee were broadly categorized therein as Information Technology Enabled Services (ITES) and Information Technology Services (ITS). He submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s call centers. He contended that the assessee company had rightly selected BPO as well as KPO as comparables in its own TP study since the distinction between BPO and KPO would not have much impact for comparability where TNMM is followed particularly when the services rendered by the assessee have attributes of KPO also. 49. Reference was made by Shri Ajeet Kumar Jain, ld. CIT (DR) to the order of the Tribunal passed in assessee's own case for A.Y. 2007-08 placed at page 28 to 40 of his paper book (ITA No. 8558/Mum/2011 dtd. 29-2-2012). It was pointed out from the relevant portion of the said order of the Tribunal at page 33 of the paper book that eClerx Services Pvt. Ltd. having 90.43% OP/TC was taken by the TPO as comparable and the same was not disputed by the assessee. He pointed out that one of the thirty comparables taken by the TPO was M/s Mod-Tek Technogies Ltd. and although the said entity having 113.49% OP/TC was disputed by the assessee, inter alia, on the ground of abnormal profits, the Tribunal finally restored the matter to the file of the A.O. with a direction to recompute the ALP margin on the basis of profit margin of all the thirty comparables. He contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase has not exercised this option and therefore it cannot take a shelter under safe harbour rules by relying on the definition given therein in support of its case that the BPO and KPO services are different and there is no similarity between them. He also contended that the safe harbour rules are framed by the CBDT vide circular dtd. 18-9-2013 and they cannot be applied in the present case involving A.Y. 2008-09. A reference was made by him to the Circular dtd. 20-12-2013 issued by the CBDT wherein it is clarified that if the safe harbour rules are not opted by the assessee, they cannot be relied upon and referred to by him. Relying on the decision of Hon'ble Supreme Court in the case of ITO v. M.C. Ponnoose and Others - ITO v. Excel Productions and Others [1970] 75 ITR 174 and in the case of Govinddas and Others vs. ITO [1976] 103 ITR 123, he contended that the safe harbour rules cannot be applied retrospectively to support the case of the assessee that there is a difference between BPO and KPO. 52. Shri Ajeet Kumar Jain invited our attention to para 1.38 of the OECD Transfer Pricing Guidelines issued in July, 2010 wherein it is stated that the information on product charact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction and the requirement for comparability analysis are method specific as given in sub rule (1) of Rule 10-B. He referred to the said Rule and submitted that price charged or paid for the property transferred or service rendered in the comparable transaction is relevant in case of CUP and re-sale price method while the cost of production incurred in respect of property transferred or services provided is relevant for cost plus method. He submitted that there is, however, no mention or reference to any property transferred or services provided in case of TNMM which is specifically there in case of other method. He contended that the relevant Rule thus makes it clear that specific characterization of the property transferred or services is not relevant for TNMM and this position is in conformity with the relevant OECD guidelines which suggest that broad comparability of functions to be done for TNMM. He contended that there is thus no need to make any distinction between BPO and KPO for TNMM and the broad category of ITES can be taken for the purpose of comparability analysis. In support of this contention, he relied on the decision of Delhi Bench of ITAT in the case of ACTIS Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inational group. The profits derived by such enterprises carrying on business in India could be controlled by the multinational group, by manipulating the prices charged and paid in such intra-group transactions, thereby, leading to erosion of tax revenues. With a view to provide a statutory framework which could lead to computation of reasonable, fair and equitable profits and tax in India, in the case of such multinational enterprises, the Finance Act, 2001 substituted the then existing section 92 of the Income-tax Act by new sections 92 and 92A to 92F. As provided therein, income arising from an international transaction between associated enterprises shall be computed having regard to the arm's length price. The term 'associated enterprise' has been defined in section 92A. Section 92B defines an 'international transaction' between two or more associated enterprises. The provisions contained in section 92C provide for methods to determine the arm's length price in relation to an international transaction, and the most appropriate method to be followed out of the specified methods. While the primary responsibility of determining and applying an arm's l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsaction is to be determined by any of the methods, being the most appropriate method, for the purposes of sub section (2) of the section 92-C of the Act has since been prescribed in Rule 10-B of the Income Tax Rules, 1962 which reads as under:-- "Determination of arm's length price under section 92C. 10B. (1) For the purposes of sub-section (2) of section 92C, the arm's length price in relation to an international transaction or a specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely:-- (a) comparable uncontrolled price method, by which,-- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering into such transactions, which could materially affect such profit mark-up in the open market; (iv) the costs referred to in sub-clause (i) are increased by the adjusted profit mark-up arrived at under sub-clause (iii); (v) the sum so arrived at is taken to be an arm's length price in relation to the supply of the property or provision of services by the enterprise; (d) profit split method, which may be applicable mainly in international transactions or specified domestic transactions involving transfer of unique intangibles or in multiple international transactions or specified domestic transactions which are so interrelated that they cannot be evaluated separately for the purpose of determining the arm's length price of any one transaction, by which-- (i) the combined net profit of the associated enterprises arising from the international transaction or the specified domestic transaction in which they are engaged, is determined; (ii) the relative contribution made by each of the associated enterprises to the earning of such combined net profit, is then evaluated on the basis of the functions performed, assets employed or to be employed and risks assumed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he enterprises entering into such transactions, which could materially affect the amount of net profit margin in the open market; (iv) the net profit margin realised by the enterprise and referred to in sub-clause (i) is established to be the same as the net profit margin referred to in sub-clause (iii); (v) the net profit margin thus established is then taken into account to arrive at an arm's length price in relation to the international transaction 55c [or the specified domestic transaction; (f) any other method as provided in rule 10AB. (2) For the purposes of sub-rule (1), the comparability of an international transaction or a specified domestic transaction with an uncontrolled transaction shall be judged with reference to the following, namely:-- (a) the specific characteristics of the property transferred or services provided in either transaction; (b) the functions performed, taking into account assets employed or to be employed and the risks assumed, by the respective parties to the transactions; (c) the contractual terms (whether or not such terms are formal or in writing) of the transactions which lay down explicitly or implicitly how the responsibiliti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (a) in either transactions may not be that relevant to judge the comparability of an international transaction in TNMM as the price charged or paid for property transferred or services provided and the direct and indirect cost of production incurred by the enterprise in respect of property transferred or services provided are taken into account for comparability analysis in the transaction methods such as CUP, resale price and cost-plus whereas the profit based method such as TNMM takes into account, the net margin realized. In TNMM, the comparability of an international transaction with an uncontrolled transaction is required to be judged with reference to functions performed as provided in sub Rule (2)(b) of Rule 10-B read with sub Rule (l)(e) of that Rule after taking into account assets employed or to be employed and the risks assumed by the respective parties to the transaction. 60. The OECD transfer pricing guidelines, issued in July, 2010, also express a similar view when it states in para 1.38 that information on product characteristics might be more important if the method applied is CUP than if it is TNMM. It further explains in para 1.40 that the requirement for compara ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uncontrolled transactions, broad functionality can be taken into consideration for selecting the potential comparables in case of TNMM. If such broad functionality is taken into consideration in the present context, we are of the view that the potential comparables at ITES sector level can be selected at first stage in the comparability analysis as the functions performed by IT enabled service providers are broadly similar and there is a common thread running through them as rendering of these services involve extensive use of information technology. 63. At this stage, it may be relevant to deal with the contention raised by Shri Porus kaka that the standard of comparability is the same even to TNMM. We may clarify here that it is not at all our intention to dilute the standard of comparability just because the method followed is TNMM. We are fully aware of the decision of the Hon'ble Delhi High Court in the case of Li and Fung India (P.) Ltd. (supra) wherein it was observed in para 34 that the standard of comparability for application of TNMM is no less than that for the application of any other transfer pricing method. We are also aware of the guidance provided in OECD Tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... D guidelines deals with "selecting or rejecting potential comparables" and suggests that there are basically two ways in which the identification of potentially comparable third party transactions can be conducted. As stated in para 3.41, the first one, which can be qualified as the "additive" approach consists of the person making the search drawing up a list of third parties that are believed to carry out potentially comparable transactions. It is stated that this approach gives a wide set of companies that operate in the same sector of activity, perform similar broad functions and do not present economic characteristics that are obviously different. 66. Section A.7 of Chapter III of the OECD guidelines deals with "arm's length range" and states that as the transfer pricing is not an exact science, there will also be many occasions when the application of the most appropriate method or methods produces a range of figures all of which are relatively equally reliable. It is stated in para 3.56 that in some cases, all comparable transactions examined will not have a relatively equal degree of comparability. It is suggested that where it is possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch other. During the course of hearing before us, Shri Ajay Vora has filed a copy of report prepared by National Skill Development Corporation (NSDC) on Human Resource and Skill Requirements in the IT and ITES Sector (2022). This report is mainly focused on mapping of human resource skill in India till 2022 especially with reference to the requirements of IT and ITES sector. As per this study report, even within the ITES industry, the skill sets required for BPO services are very different from KPO services and this aspect has been examined by NSDC in great detail in its report. It is mentioned in para 1.4.2. of the report that the growing area in this segment is what is called as Knowledge Process Outsourcing (KPO) which is moving beyond simple voice and data services and includes data analytics, content management, research and information services, animation, biotech and pharmaceutical research, medical and health services. It is also stated that the growth in this segment is expected to be in the areas of legal process outsourcing, engineering services outsourcing and financial and market research. In para 1.4.3 of the report, one of the key success factors for Indian BPO indus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocessing and data mining; (iv) Insurance claim processing (iv) legal databases;-- (v) creation and maintenance of medical transcription excluding medical advice; (vi) translation services; (vii) payroll; (ix) remote maintenance; (x) revenue accounting; (xi) support centres;-- (xii) website services; (xiii) data search integration and analysis; (xiv) remote education excluding education content development; or (xv) clinical database management services excluding clinical trials, But does not include any research and development services whether or not in the nature of contract research and development services;" 72. The term "knowledge process outsourcing services" is defined in clause (g) of 10-TA as under:-- "(9) knowledge process outsourcing services" means the following business process outsourcing services provided mainly with the assistance or use of information technology requiring application of knowledge and advanced analytical and technical skills, namely: (i) geographic information system; (ii) human resources services; (iii) engineering and design services; (iv) animation or content development and management; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant data maintained by the entity and in these circumstances, it may not be possible even to create a third category which is somewhere in between BPO and KPO. 75. Keeping in view the large number of services falling under ITES, the difficulty in classifying these services either as low end BPO services or high end KPO services, the difficulty in creating a third category of entities falling in between BPO and KPO and lesser degree of comparability even within BPO and KPO sector, we are of the view that the ITES services cannot be further bifurcated or classified as BPO and KPO services for the purpose of comparability analysis. In our opinion, there could exist significant overlap between the ITES activities or functions with some activities/functions being very fact-sensitive and introducing an artificial segregation within ITES may lead to creation of more problems in the comparability analysis than solving the same. 76. Having held that ITES services cannot be further bifurcated as BPO and KPO services for the purpose of comparability analysis, the next question that arises is what could be the basis of such dissection, bifurcation or classification of ITES services to fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and circumstances of the particular case. The process followed to identify potential comparables is one of the most critical aspects of the comparability analysis and it should be transparent, systematic and verifiable. In particular, the choice of selection criteria has a significant influence on the outcome of the analysis and should reflect the most meaningful economic characteristics of the transactions compared. Complete elimination of subjective judgments from the selection of comparables would not be feasible but much can be done to increase objectivity and ensure transparency in the application of subjective judgments. Keeping in mind all these factors, it is necessary in the present context that all the relevant facts peculiar to ITES sector should be taken into account including particularly the problems discussed by us in para 73 to 75 of this order and accordingly the relatively equal degree of comparability should be sought to be achieved by taking into consideration the functional profile of the tested party and comparing the same with functional profile of the potential comparables selected at ITES level. 78. To sum up, we hold that the potential comparables o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that there are two types of services mainly provided by it to its AEs and they were classified under two heads "provision of IT enabled services" and "provision of IT services". Although this claim of the assessee has not been accepted by the DRP which treated both these services under one broad head of "IT enabled services", the functions performed by it in relation to both these types of services were separately given by the assessee company in its TP study report as under:-- "4.1.1 - Provision of I.T. enabled services. MGSCIPL is engaged in providing back office support services to AE. Activities undertaken by MGSCIPL are essentially IT enabled services such as data entry, transcription, reconciliation, consolidation, co-ordination, preparation, processing and review of shipping documents such of hills of lading, etc. Broad activities carried on by MGSCIPL as directed by AL from time to time are as follows: Export/Import documentation - Log, review and process shipping instructions to produce draft transport documents; - Receive, log and process amendments to shipping instructions: - Publish Transport Documents to the Web; - Per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maersk - Product Catalogue (MEPC) details; - Contract Drafting: Draft all lanes in MARS awarded to Maersk Line; and - Data Quality: Various audit functions based on different business units' strategy (Global invoice audit, (Container billing count, DSL Audit. GBR dispute team). L 4.1.2 Provision of IT services MGSCIPL provides IT services such as process support, process optimization and technical support to its A Is. MGSCIPL provides technical support services to users of corporate systems. Functions performed by MGSCIPL under IT services segment could be categorised under following headings: DL Process support MGSCIPI, provides first line process support services or preliminary support services to users o corporate systems. Users are the employees of Maersk group entities worldwide. IT professionals of MGSCIPL analyze the problem faced by users and offer preliminary solutions on use of systems and provide support to system implementation. If the problem is not resolved, then the same is escalated to second level support. Process Optimisation Second level support is provided by technical personnel who are expert in specific modules within the corporate sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the AE. These main services rendered by the assessee to its AEs thus involved primarily data entry, transcription, consolidation, co-ordination, preparation, processing and review of shipping documents and such other similar support services which were mainly comprising of back office support services rendered by the assessee to its AEs in the nature of low-end services. The profile of work-force employed by the assessee during the year under consideration comprised of 96% of graduates and post-graduates whereas only 4% work-force was professional such as CA, B. Tech etc. which again goes to show that the functions performed by the assessee company to its AEs were mainly in the nature of providing back office support services of low-end nature. Going by the functions performed by the assessee to its AEs during the year under consideration, we are of the view the assessee was a captive contract service provider mainly rendering back office support services and such services rendered by it to its AEs involving some degree of special knowledge and expertise formed only small portion of the services rendered by it which essentially were in the nature of incidental services. 81. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores made by Mold-Tek technologies Ltd. was excluded by the A.O. treating the same as non-operating expenses whereas in the case of Rushabh Diamonds (supra), it was held by the Division Bench of this Tribunal that the gain or loss arising from the forward contract entered into for the purpose of foreign currency exposure on the export and import has to be taken into consideration while computing the operating profit. 82. In so far as M/s eClerx Services Limited is concerned, the relevant information is available in the form of annual report for financial year 2007-08 placed at page 166 to 183 of the paper book. A perusal of the same shows that the said company provides data analytics and data process solutions to some of the largest brands in the world and is recognized as experts in chosen markets-financial services and retail and manufacturing. It is claimed to be providing complete business solutions by combining people, process improvement and automation. It is claimed to have employed over 1500 domain specialists working for the clients. It is claimed that eClerx is a different company with industry specialized services for meeting complex client needs, data analytics KPO ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equiring no TP adjustment. We accordingly direct the A.O.to recompute the ALP of the transactions of the assessee company with its AEs applying the average profit margin of the remaining eight comparables. If the difference between the ALP so recomputed and the price actually charged by the assessee is within the safe harbour limit of (+) or (-) 5%, the A.O. is directed not to make any TP adjustment as per the second proviso to section 92C(2) of the Act. 85. Keeping in view our decision rendered above, the other issues involved in ground No. 2 to 8 of the assessee's appeal including the issue involved in Q No. 2 referred to this Special Bench have become infructuous/academic requiring no adjudication on merit. The same are accordingly dismissed. However, keeping in view that the issue involved in Q No. 2 has been specifically referred for the adjudication by this Special Bench, we now proceed to consider and decide the same for the sake of completeness. 86. As regards the issue involved in question No. 2 as to whether in the facts and circumstances of the case, the company earning abnormal high profit margin should be included in the list of comparable cases for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... td. [2013] 32 taxmann.com 101 (Hyd.) 3. BA Continuum India (P.) Ltd. v. ACIT ITA No. 1154/Hyd./2011 4. Avineon India (P.) Ltd. v. DCIT ITA No. I989/Hyd./2011 5. Market Tools Research (P.) Ltd. v. DCIT ITA No. 181l/Hyd./2012 6. Google India (P.) Ltd. v. DCIT [2013] 29 taxmann.com 412 (Bang.) 7. Capital IQ Information Systems (India) (P.) Ltd. v. DCIT [2013] 32 taxmann.com 21 (Hyd.) 8. Sap Labs India (P.) Ltd. v. ACIT [2011] 44 SOT 156 (Bang.) 9. DCIT v. Quark Systems (P.) Ltd. [2010] 132 TTJ 1 (Chd.)(SB) 10. Agnity India Technologies (P.) Ltd. v. 1TO ITA No. 3856 (Del)/2010 11. Philips Software Center (P.) Ltd. v. ACIT [2008] 119 TTJ 721 (Bang.) 12. Adobe Systems India (P.) Ltd. v. ACIT [2011] 138 TTJ 122 (Del) 13. Teva India (P.) Ltd. v. DCIT [2011] 44 SOT 105 (Mum)(URO) 14. ACIT v. Sonata Software Ltd. [2013] 29 taxmann.com 144 (Mum) 15. Meritor LVS India (P.) Ltd. v. ACIT ITA No. 405/Bang/2011 16. DCIT v. Mitsui O.S.K. Lines Maritime (India) (P.) Ltd. [2011] 48 SOT 155 (Mum.) 17. ITO v. Saunay Jewels (P.) Ltd. [2010] 42 SOT 4 (Mum.) 18. Lintas India (P.) Ltd. v. ACIT [2012] 27 taxmann.com 300 (Mum.) 19. ACIT v. D.A. Jhaveri [201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or enquiries to ascertain and decide whether the entities earning such super normal profits should be included in the list of final comparables or not. 89. Shri Ajay Vora, the ld. Counsel for the intervener also put forth his argument on the issue relating to the exclusion of entity earning super normal or abnormal profits from the list of final comparables. He contended that if the high margin earned by the concerned entities is due to their efficiency, these entities cannot be excluded merely on the ground of high margin. He contended that if such high margin, however, is due to any exterior factor, the concerned entities should be excluded from the list of comparables. He submitted that such exterior factor could be different such as lower depreciation, earnings due to fluctuation in foreign currency rates etc. He contended that the consistency of high margin is also required to be seen to find out as to whether the high margin is a normal situation or abnormal. He submitted that in the case of Symantec Software Solutions (P.) Ltd. (supra), three out of thirteen comparables selected by the TPO were showing high magnitude of margin as compared to the remaining 10 entities and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the quartile method of central tendency removes the extreme results but by adopting the arithmetic mean and not quartile, the law makers want even the extreme results to be considered. 91. As regards the CBDT Circular No. 14 of 2011, para 55.10 referred by Shri Porus Kaka, Shri Ajeet Kumar Jain submitted that section 92-C of the Act was originally introduced w.e.f. 1-4-2002 in the statute providing for calculating the average profit margin by using arithmetic mean without any scope for further adjustment. He submitted that an amendment, however, was made subsequently to allow such +_ 5% adjustment right from inception providing more flexibility. In this regard, he relied on para 50.4 of the CBDT Circular No. 8/2002 issuing clarification regarding provision for transfer pricing wherein it is clarified that under the existing provisions contained in the proviso to the sub-section (2) of section 92-C of the Act, if the application of the most appropriate method leads to determination of more than one price, the arithmetic mean of such prices shall be taken to be the ALP in relation to the international transaction and with a view to allow a degree of flexibility in adopting t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Kumar Jain pointed out that there were atleast eight decisions rendered by the Tribunal prior to the case of Willis Processing Services (I) P. Ltd. (supra) taking a view in favour of the assessee on this issue and it therefore cannot be said that the Tribunal in the case of Willis Processing Services (I) Pvt. Ltd. deviated from the consistent view taken earlier by the Tribunal on this issue in favour of the assessee. He submitted that in para 34.1 of its order passed in the case of Willis Processing Services (I) Pvt. Ltd., the Tribunal in fact has taken note of at least five decisions rendered by the co-ordinate Benches taking a view in favour of the Revenue on this issue. He submitted that in most of these thirteen cases decided by the Tribunal, all the material aspects including the relevant Rules and even the OECD guidelines have been taken into consideration by the Tribunal while passing the orders. He submitted that in the case of BP India Services (P.) Ltd. (supra), for instance, the fact of comparables earning extreme profits than the profits earned by other comparables was taken note of by the Tribunal and it was held that the very rationale of having average in case of mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comparability is judged primarily by seeing the functional similarity and then the capital employed and risks undertaken. Higher or lower profit rate is not and can never be a relevant criteria to judge the comparability. Shri Ajeet Kumar Jain contended that the filters are the means to achieve the end results of comparables in order to determine the ALP on the basis of margin. He contended that the margin therefore cannot be considered as filter as sought to be contended by Shri Pours Kaka or otherwise it would amount to taking end result as mean. He contended that the factors affecting end result only can be taken as filters. 95. As regards the reliance placed by Shri Porus Kaka on para 3.63 to 3.66 of the OECD guidelines dealing with extreme results, Shri Ajeet Kumar Jain pointed out that these paras are part of section A-7 of the OECD commentary dealing with arm's length range and it is suggested that if such range includes a sizeable number of observations, statistical tools that take account of central tendency to narrow the range (e.g. the inter-quartile range or other percentile) might help to enhance reliability of the analysis. He contended that there is no such arm& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a specific range as sought to be contended by Shri Porus Kaka. On the other hand, the arithmetic mean is a commonly used measure of central tendency after taking into consideration the sum of the values of all observations and then divided by the number of observations. At the time of hearing before us, Shri Ajeet Kumar Jain has furnished hypothetical working of arithmetic mean of profit margins of fifteen comparables to show that even the extreme values do not affect the arithmetic mean materially or substantially. We also find from the final working of arithmetic mean of profit margins of ten comparables made by the A.O./TPO in assessee's own case that out of these ten cases, three cases were of low profit with 2.99%, 7.70% and 8.90% of profit margin and two were of high profit margin of 83.31% & 63.06% while the remaining five were in the range of 15 to 35% and their average profit margin by calculating the arithmetic mean was 28.04%. This working made in assessee's own case thus clearly shows that the extreme values in both the end of spectrum do not materially affect the arithmetic mean and such extreme values are taken care of when the arithmetic mean is used as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Trilogy E-Business Software India Ltd. (supra) wherein it was held that the TP Regulations provide arithmetic mean method for determining the ALP wherein all companies that are in the sample are considered without exception and the average of all the companies is considered as ALP. In the case of Stream International Services (P.) Ltd. (supra), the Mumbai Bench of ITAT held that comparability is judged primarily by seeing the functional similarity and then the capital employed and risks undertaken but the higher or lower profit rate is not and can never be a relevant criteria to judge the comparability. 98. As noted by the Division Benches of the Tribunal in the cases discussed above, the OECD guidelines suggest quartile method which excludes the companies that fall in the extreme quartiles for comparability and there is deviation in this respect in T.P. Regulations in India which specify the Arithmetic Mean for determining the ALP. Neverthless, the OECD TP Guidelines have considered and dealt with the situation of extreme results in the context of comparability consideration in section A.7.3 of chapter III and it is ++++++ suggested in para 2.63 that where one or more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, we are of the view that the high profit margin making entity should not be included in the list of comparable for the purpose of determining the arm's length price of an international transaction. Otherwise, the entity satisfying the comparability analysis with its high profit margin reflecting normal business condition should not be rejected solely on the basis of such abnormal high profit margin. Question No. 2 referred to this special bench is answered accordingly 100. As regards the issue raised in ground No. 9 relating to the assessee's claim for credit of Rs. 6,12,400/- on account of TDS credit, Shri Porus Kaka has sought only a direction to the A.O. to verify the claim of the assessee on this issue and allow the credit for TDS on such verification. Since Shri Ajeet Kumar Jain, the ld. CIT(DR) has also not raised any objection in this regard, we restore this issue to the file of the A.O. with a direction to allow the claim of the assessee for TDS credit after necessary verification. 101. The issue raised in ground No. 10 relating to initiation of penalty proceedings u/s 271(l)(c) of the Act is pre-matured requiring no decision from us at this stage. Ground No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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