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TMI Blog2015 (5) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant and embarking on a fresh search for comparables. 3. The learned TPO erred in fact and in law in applying inappropriate filters in the benchmarking search carried out by him and the Honourable DRP and the learned AO have erred in upholding the same. 4. The learned TPO erred in considering companies with very high turnover as comparables to the assessee and the Honourable DRP and the learned AO have erred in upholding the same. 5. The learned TPO has erred in selecting companies, which are not comparable to the assessee due to various factors such as functional comparability, product led revenues, high levels of related party transactions, inadequate financial information etc. 6. The learned TPO erred in computing the operating margins of the comparable companies at higher levels and the Honourable DRP and the learned AO have erred in upholding the same. 7. The Honourable DRP and the learned AO/TPO have erred in treating foreign exchange gain / loss as a non operating item. 8. The learned AO/Honourable DRP have erred in not granting adjustments for the differences in the risk profile, considering that the appellant being a captive service provider operating under a cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Arithmetic mean 7.20 3.1 After considering the study submitted by the assessee, the TPO held that many companies selected by the assessee did not present the software development industry in a true sense. The TPO accepted two comparables out of the seven comparables selected by the assessee. He gave the reasons for accepting two comparables in following manner. S.N Name of the Company Accepted/Rejected Reasons for rejection 1. Astro Bio Systems Ltd. Rejected As the name of the company suggests, the company is functionally different from the taxpayer. Hence, the same is rejected as a comparable. 2. Goldstone Technologies Ltd. Rejected The company is wholly engaged in IT enabled services and not in software development services. Hence, this company is functionally different from the assessee and hence is rejected as a comparable. 3. Maars Software International Ltd. Rejected The company is predominantly an onsite services company. Hence, it is functionally different from the taxpayer and the same is rejected as a comparable. 4. Megasoft Ltd. Accepted --- ---- 5. Orient Information Technology Ltd. Rejected The company is predominantly an onsite services com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee on providing software development -Rs.8,17,03,733/- ii) Mark up as per Comparable (20.68-2.99 assessee 17.69%) Rs. 1,44,53,388/- iii) Actual markup received-Rs.79,65,880/- As per the TPO, the assessee had sought benefit of (+/-)5% in respect of adjustment in terms of provision to section 92C(2) of the Act. He held that, the benefit of the s. 92C(2) was available to the taxpayer in the case where variation in price @5% of the price charged for the international transaction compared with ALP, that the variation in the disclosed price and the determined ALP was more than the limit prescribed by the Act. As a result, he recommended upward adjustment of Rs. 64,87,508/-. The AO, after receiving the order of the TPO passed a draft order proposing an adjustment of Rs. 64.87 lacs. The assessee agitated the issue before the Dispute Redressel Panel (DRP-I).Vide its direction, dt.27.9.2010, issued u/s. 144C(5) of the Act, the DRP held that the final set of comparables by the TPO was based on scientific basis, that the TPO had applied the TNMM method on the basis of segmental search, that the AO had obtained current data by issue of notice u/s.133(6) of the Act, that the TPO had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 AY :2008-09) and further argued that the assessee has not relied upon the data of the relevant year ,that segmental data was not given by it. In rejoinder, the AR stated that from the annual report, (Pg-511),it was clear that the data was for the year under appeal only,that segmental data was available, that the assessee was not a product company. 5.We have heard the rival submissions and perused the material before us. Transfer pricing provisions were introduced in the Act with specific purpose-to evaluate the international transactions, entered into by an assessee with its associates, in a balanced and judicious manner. Arithmetical precision is neither expected nor possible in valuing transactions covered by the TP provisions. Everything revolves around the comparables selected by the AO or the assessee.If the variables of the comparables chosen by the AO/the assessee are identical or almost identical to the transactions undertaken by the assessee, it is considered a valid comparable. Thus,degree of nearness to the facts of the transaction in question is the basis for an acceptable TP study. We find that the only dispute between the AO and the assessee is about the adjustmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 014(Delhi) v) Tata Power Solar Systems Limited TS-14-ITAT-2014(Mumbai) vi) Premier Exploration Services P. Limited TS-146-ITAT 2013-Delhi-TP Para-14 vii) Stream International Services Private Limited 2013-TII-42-ITAT-MUM-TP 5. We have considered the rival contentions and found that CRISIL Limited was proposed by the assessee itself in its transfer pricing document after considering functional assets, risk and economic analysis of the comparable company. At the very same time, the coordinate bench in the decision referred above by learned AR had held that in case of comparable having different year ending, the same should be ignored. Keeping in view the totality of facts, we restore for reconsideration of CRISIL Limited as comparable after considering assessee's contention regarding different year ending being followed by the assessee vis-à-vis CRISIL Limited. We direct accordingly." Respectfully, following the same we hold that a comparable having a different accounting year cannot be a valid comparable. In the case under consideration the assessee is following financial year ending whereas the comparable chosen by the TPO is having calendar year ending. We also f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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