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TMI Blog2015 (6) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... For The Assessee : Shri Prakash K. Jotwani Shri Shrikanth For The Revenue : Ms. Nishtha Tiwari ORDER PER R.K.PANDA, AM : This appeal filed by the assessee is directed against the order dated 28-01-2011 of the CIT(A)-I, Pune relating to Assessment Year 2005-06. 2. Facts of the case, in brief, are that the assessee Ocean Connect (I) Pvt. Ltd., (OCIPL in short) is a wholly owned subsidiary of Oceans Connect (UK) Ltd. (OCUK in short) which was incorporated under the Companies Act, 1956 on 31-08-2001. It has been set up to provide call centre services to its parent company OCUK. It filed its return of income on 31-10-2005 declaring total income of ₹ 12,240/-. A reference u/s.92CA(1) of the I.T. Act was made by the AO to the TPO who issued notice u/s.92CA(2) to the assessee calling for certain details. 3. From the various details furnished by the assessee during the course of Transfer Pricing assessment, the TPO noted that the assessee during the impugned assessment year has entered into international transaction as under : Sr.No. Name Address of the AE Description of transaction with AE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out on the basis of revenues calculated at cost + 12% is comparable with the rates charged by other call centers for similar services. It would be relevant to note that in terms of the responsibilities assumed by OCIPL the risks to OCIPL are minimal as it does not bear risks of capital expenditure, marketing, collection, initial training and specific hardware / software for projects. Also, since this is a dedicated operation costs -for the purposes of adding the margin of 12% - are overall costs as per the audited profit and loss account and hence include amortizations and depreciation. Therefore the price has been calculated on a reasonable basis and this is borne out by the fact that the pricing helps to cover estimated future requirement of funds. 4. However, the TPO was not satisfied with the above explanation of the assessee and issued a show cause notice under the proviso to section 92C(3) of the I.T. Act. In the said notice, the TPO had proposed the following 2 companies to be taken for benchmarking the international transaction pertaining outbound/inbound telemarketing/call centre services following TNM method, the details of which are as under : Sr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to provide the services to OCUK only and not to any other customers. Therefore, business operations of the assessee is depending only on one client which itself is the biggest risk. According to the TPO it is not possible to quantify the risk factors. Similarly, the assessee has also not tried to demonstrate the same. Therefore, he rejected the argument of the assessee that adjustment should be made considering the risk factor. Rejecting the various explanations given by the assessee, the TPO considered the two comparables namely Maple Esolutions and Saffron Global Ltd., as comparables. Considering the arithmetic mean of 29.79% of the 2 comparables the TPO made upward adjustment of ₹ 1,48,03,162/- to the international transaction carried out by the assessee. 7. During the course of assessment proceedings, the AO gave an opportunity to the assessee to substantiate its arguments if any. After considering the submission of the assessee the AO made addition of ₹ 1,48,03,162/- to the total income of the assessee. 8. Before CIT(A) the assessee more or less reiterated the same arguments except stating further that the TPO was not justified in rejecting the other 8 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... data of the companies referred to in by the TPO in selection of the companies whose data have been relied upon by the TPO. 5. The learned Commissioner of Income Tax (Appeals) has erred in overlooking to the decision of the territorial jurisdiction of the Appellate Tribunal in case of E-Gain Communication Pvt. Ltd. - 23 SOT 285 wherein the profitability ratio is much lower than the case of the appellant carrying on exactly the similar business. 6. Your appellant request leave to add, alter or modify the grounds of appeal, if so required . 10. The Ld. Counsel for the assessee referring to the decision of the Hyderabad Bench of the Tribunal in the case of Market Tools Research (P) Ltd. Vs. DCIT reported in 43 taxmann.com 195 (copy of which is placed at page 124 to 127 of the paper book) submitted that the Tribunal following the decision of various benches of the Tribunal including that of the Hyderabad Bench have held that Maple Esolutions Ltd. cannot be treated as comparable as its financial results are not reliable. Accordingly, it has been held not to treat this company as a comparable. Referring to the decision of the Mumbai Bench of the Tribunal in the case of Stream In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e involved in fraud, for which it has to be excluded from the comparables, the book results declared by the assessee has to be accepted. 12. In his alternate contention, he submitted that it may be set aside for the limited purpose of considering the 2 comparables as to whether they are involved in fraud or not and if so then to exclude the same. 13. The Ld. Departmental Representative on the other hand strongly supported the order of the CIT(A). He submitted that the assessment year involved in the instant case is 2005-06 whereas the Assessment Year involved in the case decided by the Mumbai Bench of the Tribunal in the case of Stream International Services Pvt. Ltd. relates to A.Y. 2007-08. Therefore, Mapple Esolutions cannot be excluded from the list of comparables. Further, the assessee has not taken any comparables for the TP study during the year. He accordingly submitted that the order of Ld.CIT(A) be upheld. 14. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer/Transfer Pricing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative, the assessee has not considered any company as comparable. Therefore, according to the Ld. Departmental Representative, the TPO should be given another opportunity to select comparable cases by making further study and adopt suitable comparables. 16. After considering the arguments and counter arguments, we are of the considered opinion that the matter requires fresh adjudication at the level of the TPO considering the fact that assessee has not considered any company as comparable and the 2 companies selected by the TPO from the final list of 10 companies are involved in fraud for which the financial results cannot be considered as correct and reliable. The TPO, however, is at liberty to search for fresh comparables and determine the ALP of the international transaction carried out by the assessee for the impugned assessment year. While doing so, the TPO shall give due opportunity of being heard to the assessee and decide the issue as per fact and law. We hold and direct accordingly. The grounds raised by the assessee are accordingly allowed for statistical purposes. 17. In the result, the appeal filed by the assessee is allowed for statistical purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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