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TMI Blog2016 (7) TMI 1373X X X X Extracts X X X X X X X X Extracts X X X X ..... account of working capital employed should also be factored into. In order to improve the reliability of results, the financial data of comparable companies are required to be adjusted. The efforts stated decisions of this tribunal has held that in practice such adjustments usually include adjustments for accounts payable, accounts receivable and inventory. We accordingly allow this ground of appeal raised by the assessee Unabsorbed depreciation adjustment - Held that:- When the assessee has brought forward business losses as well as unabsorbed depreciation, the Act specifies a sequence in which these allowances shall be set off. While computing total income of an assessee, carry forward unabsorbed depreciation can be set off in future years only after setting off the brought forward business losses. Further the provision is clear that carry forward unabsorbed depreciation can be set off not only against income from profits and gains from business and profession, but also against income from any other head including income from other sources. In the present case the assessee has brought forward business losses as well as unobserved depreciation. The act specifies the sequence in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argin method (TNMM) as the most appropriate method (MAM) to benchmark the international transaction. The assessee used operating profits to operating cost (OP/OC) as the profit level indicator (PLI) to determine the margin of the comparables. 2.3 The Ld.TPO has not objected the MAM and the PLI calculated by the assessee. The only issue that has been disputed by the ld.TPO is in respect of the selection of comparables. Following are the set of comparables selected by the assessee for ITES segment. S.No. Name of the company remarks 1 Caliber Point Business Solutions Ltd. This company is having different financial year ending i.e. December. Hence, can't be considered as suitable comparable. 2 CG-VAK Software & Exports Ltd. Income from BPO Business is less than ₹ 1 crore. Hence, not a suitable comparable. 3 Cosmic Global Ltd. This company fails export filter (52.96%).Hence, not a suitable comparable. 4 Informed Technologies Ltd. This company is having sale below s.5 crores. Hence, not a suitable comparable. 5 Infosys BPO Ltd. This is a suitable comparable 6 Jindal Intellicom Pvt. Ltd. This is a suitable comparable. 7 Microgenetics Systems Ltd. This compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot;)/ Deputy Commissioner of Income Tax - Transfer Pricing Officer - 1 (2)(1) {erstwhile TPO 1 (3)}, New Delhi ("Learned TPO")/ Hon'ble Dispute Resolution Panel ("Hon'ble DRP"), making an addition of INR 21,057,956 to the total income of the Appellant on account of adjustment in the arm's length price is bad in law. 2 That on facts and in law, the Ld. DRP/TPO/AO have erred in computing the total income of the Appellant at INR 26,456,900/- as against the returned income of INR 1,997,189 by making an upward adjustment of INR 24,459,711/- with respect to Arm's Length Price of the international transaction. 3 That on facts of the case and in law, the Ld. DRP/ TPO /AO have erred in law and in facts, by not accepting the economic analysis undertaken by the Appellant in accordance with the provisions of the Act read with the Rules and conducting a fresh economic analysis for the determination of the ALP of the international transactions pertaining to IT enabled services provided to associated enterprises and holding that the Appellant's international transactions are not at arm's length. 4 That on facts of the case and in law, the Ld. DRPI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and in the circumstances of the case, the Ld. AO have erred, in charging interest under section 234 B of the Act. The above grounds of appeal are mutually exclusive & without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal. The Appellant prays for appropriate relief based on the said grounds of appeal and the facts and circumstances of the case." 4. We have heard the rival contentions of both the sides, perused the orders passed by the authorities below, the paper books filed by the assessee and the case laws relied upon by both the sides. The only dispute that arises is with respect to selection of the comparables. To be precise the controversy rotates around the exclusion of the following comparable in the list of comparables in respect of:- 1. Accentia Technologies Ltd 2. Infosys BPO Ltd 3. TCS E-Serve Ltd 4.1 Apart from that the assessee is insisting on inclusion of the following comparables which were not included by the DRP as well as the TPO in their list of comparables:- 1. CG-VA K software and exports Ltd 2. R S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red to the associated enterprise. Thus on the basis of the above functional analysis the assessee can be characterised as a routine service provider operating in a low risk or almost risk mitigated environment. 5.4 With the above understanding of the nature of services provided by the assessee to its AE's, we will now proceed to examine the compatibility or otherwise of the companies disputed by the assessee to the extent. Grounds 1 and 2 are general in nature. Ground No. 3 to 9 4. We shall 1st take up the comparables where the assessee contends for exclusion. Accentia Technologies Ltd. 4.1. Ld.TPO considered this as a comparable. Assessee objects to the compatibility of this company is due to functional incompatibility. Ld.AR submitted that this company was having supernormal profit and is engaged in providing KPO services which is distinct from the nature of services provided by the assessee before us. He has placed reliance upon the decision of coordinate benches of this tribunal in the case of M/s.Capital IQ Information Systems (India) Pvt. Ltd. Vs. DCIT in ITA No. 1961/H/2011 and Symphony Marketing Solutions India Pvt. Ltd., in ITA No. 1316/BANG/2012, wherein the dissimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O Ltd 6.4. The TPO included this company despite assessee's objections. Assessee had objected for inclusion of this company as it provides high-end integrated services in the nature of business platforms, customer service outsourcing, finance and accounting LPO, HR outsourcing, sourcing and procurement outsourcing etc. The company also has a high brand value of goodwill and has acquired a company or by the name McCsmish Systems LLC to provide end-to-end solutions. 6.5. Ld.DR, however, refer to the extracts made by the ld.TPO in the order to submit that Infosys BPO Ltd. is a comparable company with that of assessee. The ld.DR relied upon the extract of the decision of Hon'ble Delhi High Court in the case of Chris Capital Investment vs. DCIT (supra), which has been reproduced hereinabove. 6.6. After considering the rival submissions and pursuing the relevant material on record, we find that for the year under consideration, this company has had extraordinary financial events. It is noted that the company is providing high end integrated service by assisting its clients in improving their competitive positioning by managing their business process in addition to providing increased ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder consideration, this company has made payments towards use of Tata brand. Consequentially use of the TCS brand has substantially increased the operating profits post acquisition. The Ld. AR submitted that the DRP had excluded this company in the immediately preceding previous year. Without any proper reason or change in the functionality and financial data for the year under consideration, it cannot be held that this company can be considered as a comparable. The Ld. TPO has to bring some material on record to show that why this comparable was excluded, in the previous year and in the year under consideration it should be included. Admittedly neither the TPO nor the Ld. DR has been able to demonstrate the difference in the functionality and/or financial data of the assessee for the year under consideration viz-a-viz previous assessment year. Hence following the rule of consistency, we are of the opinion that this company cannot be considered as comparable for the year under consideration. We therefore direct to exclude this comparable. 6.11. Further it was submitted by the Ld. A.R. that in respect of the comparables selected by the Ld. TPO being e 4 e Health care Business Serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nover on the basis of which a particular case can be included or excluded in the list of comparables." "In service industry, turnover does not play any significant role as far as the margins are concerned…. This reinforces the view that turnover does not play a significant role in service industry and there is no link between turnover and margins…. The turnover is not a relevant factor for choice of comparables has been confirmed in many decision, as listed below." 7.4. Applying the ratio laid down by the coordinate bench of this tribunal in the case of Willis processing services private limited (supra) we direct the ld. TPO/AO to include this company to the list of comparables. R Systems International Ltd 7.5. The ld.TPO has rejected the company on account of different financial year ending vis-a-vis the assessee. The ld.AR submitted that companies whose financial data was available for the relevant period, were considered in view of rule 10 D (4), which provides that information to be used must be contemporaneous. The ld. AR submitted that, though the Company has different financial year ending, were operating during the same period of time as the assessee, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Centre India private limited in ITA No. 2195/del/2011 wherein it has been held that if a company is functionally comparable, it cannot be rejected merely on the ground that data for the entire financial year was unavailable, if the data can be reasonably extrapolated. Hon'ble tribunal further observed that rule 10 B (4) cannot be interpreted in such a rigid manner so as to defeat the basic objective of the rule. The relevant extract of the ruling are reproduced below: " 23. ….. However, in our considered opinion, if a comparable is functionally same as that of the tested party then the same cannot be rejected merely on the ground that data for entire financial year is not available. If from the available data on record the results were financial year can be reasonably extrapolated, then the comparable cannot be excluded solely on this ground. The learn ADR as referred to rule 10 B (4) which only mandates that the data which is to be utilised for analysing the comparability of uncontrolled transactions with an international transaction, has to be financial year only in which the international transaction has been entered into. This rule is based on matching principle but t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Business profits after adjustment of unabsorbed depreciation but beforeadjustment of brought forward loss (A) 1,269,949 Step 1- Less: Brought forward loss 1,269,949 Income taxable under the head "Profits and gains from business and profession" (B) NIL Income from other sources © 4,128,994 Total Taxable income (A+C) 5,398,994 The DRP upheld adjustment made by the Ld. AO. 7.1. The Ld. AR submits that the proposed adjustment is based on incorrect interpretations of provisions of section 32 (2) of the act. Section 32 (2) lays down the provisions for carry forward of unabsorbed depreciation and set off of the same subject to applicability of section 72 (2) which lays down the manners of setting off of unabsorbed depreciation, when the assessee has brought forward losses as well. 7.2. On the contrary the Ld.DR relied upon the orders of the authorities below and CBDT Circular No. 7/2013 dated 18/07/2013. 7.3. We have perused their rival submissions of both the parties. When the assessee has brought forward business losses as well as unabsorbed depreciation, the Act specifies a sequence in which these allowances shall be set off. The relevant provisions of the Act ar ..... X X X X Extracts X X X X X X X X Extracts X X X X
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