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TMI Blog2016 (8) TMI 1292X X X X Extracts X X X X X X X X Extracts X X X X ..... risk, such as, single customer risk. However, he has rejected assessee’s claim primarily for the reason that the assessee has not properly quantified the risk adjustment. As far as the learned Commissioner (Appeals) is concerned, he has not given any independent finding but has simply endorsed the view of the Transfer Pricing Officer. Thus we are inclined to restore the issue relating to risk adjustment to the file of the Transfer Pricing Officer/Assessing Officer for deciding afresh keeping in view in the decisions relied upon as referred to herein before and after due opportunity of being heard to the assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer, the Assessing Officer completed assessment by adding the amount of ₹ 2,76,66,011. Being aggrieved of the addition made on account of the transfer pricing adjustment assessee preferred appeal before the learned Commissioner (Appeals). 3. Learned Commissioner (Appeals) after considering the submissions of the assessee in the light of the facts and material on record, disposed off the appeal granting partial relief to the assessee. Being aggrieved with the order of the learned Commissioner (Appeals), assessee has preferred the present appeal by raising multiple grounds. However, at the time of hearing, Shri A.V. Sonde, learned Counsel appearing for the assessee confined his argument to the issues relating to selection/rejection of comparables and allowance of risk adjustment. In view of the aforesaid, we will confine our decision to these issues only. At the outset, we will deal with the issues relating to selection/rejection of comparables as under:- CEPHA IMAGING PVT. LTD. 4. Objecting to selection of this company by the Transfer Pricing Officer, learned Authorised Representative submitted, annual report of this company for financial year 2004-05 is not available i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtaining to the very same assessment year, respectfully following the same, we hold that this company cannot be treated as comparable to the assessee. COSMIC GLOBAL LTD (Formerly known as Tulsyan Ltd.) 7. Objecting to this company, learned Authorised Representative submitted, this company is mainly engaged in translation service. Referring to the Profit & Loss account of the comparable, learned Authorised Representative submitted, it has paid significant translation charges to sub-contractor which works out to 47.12% of its total cost. This implies that the company outsources the translation activities to others, hence, the business model of this company is different from the assessee. Learned Authorised Representative referring to the Profit & Loss account of the company at Page-355 of the paper book submitted, the company has incurred expenditure in foreign currencies towards translation charges. He submitted, for this reason, the company was treated as not comparable in case of Maersk Global Service Centre (India) Pvt. Ltd. (supra). He also referred to the decision of the Tribunal, Hyderabad Bench in Capital IQ Information System India Pvt. Ltd. v/s ACIT. 8. Learned Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .); iii) ITO v/s Nextlinx India P. Ltd., dated 19.10.2012 iv) Brigade Global Service P. Ltd. v/s ITO, 33 Taxmann.com 618 (Hyd.); v) BA Continuum India P. Ltd. v/s ACIT, 40 Taxmann.com 311 (Hyd.) 12. Learned Departmental Representative relying upon the observations of the Transfer Pricing Officer submitted, the assessee during the transfer pricing proceeding has not given any valid reason to exclude Vishal Information Technologies Ltd. 13. We have considered the submissions of the parties and perused the material available on record. The primary reason for which assessee has sought exclusion of this company as a comparable is, the major portion of its ITES activities was outsourced. On a perusal of the financial statement of the company as submitted before us, we have noted that the employee cost of this company as a percentage of total cost comes to a meager 1.36% as against 44% incurred by the assessee. Thus, from the aforesaid fact, it is clear that the business model of the assessee and this company are different considering the fact that while assessee undertakes the ITES service on its own whereas Vishal Information Technologies Ltd. without doing the ITES service itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntal Representative, however, justifying the selection of this company submitted, the assessee while selecting comparable has not applied turnover filter, therefore, at this stage it cannot seek exclusion of comparable on the basis of high turnover. 16. We have considered the submissions of the parties and perused the material available on record. We have noted that the Transfer Pricing Officer while selecting/rejecting comparable has applied the turnover filter of more than ₹ 1 crore. It is also a fact on record that the Transfer Pricing Officer excluded one of the companies selected by the assessee viz. Online Media Solutions Ltd. by stating that the turnover of assessee is more than 23 times of the selected company. That being the case, applying same logic, the Transfer Pricing Officer should have excluded Wipro BPO Solutions Ltd. as turnover of Wipro at ₹ 647.71 crore is about 27.55 times of the turnover of assessee at ₹ 23.51 crore. The Hon'ble Jurisdictional High Court in Pentair Water India Pvt. Ltd. (supra) excluded high turnover companies like HCL Comnet Systems, Infosys, Wipro Ltd., due to huge disparity in turnover. Applying the same principle, Wip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t been controverted by the learned Departmental Representative. Even, as per generally accepted principle, companies having RPT of more than 25% are excluded from being treated as a comparable. Though, it may be a fact that assessee in the proceedings before the Departmental Authorities, has not objected to selection of this company as a comparable but, if the company otherwise fails the filter applied by the Transfer Pricing Officer himself it cannot come within the zone of consideration. Moreover, different benches of the Tribunal have also consistently held that companies having RPT of more than 25% should not be treated as comparable. The learned Authorised Representative stated before us that RPT of Tricom India Ltd. is about 56%. Considering the aforesaid contention of the assessee, we are inclined to restore the issue relating to comparability of Tricom India Ltd. to Transfer Pricing Officer. If on verification, RPT of this company is found to be more than 25% then it should not be treated as a comparable to the assessee. SAFRON GLOBAL LTD. 21. Objecting to selection of this company, learned Authorised Representative submitted, directors of this company were involved in fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... different from the assessee as it has not earned any export revenue. Learned Authorised Representative referring to the annual report of the company submitted, it is functionally similar to the assessee as it is in BPO service. He further submitted, the company has incurred most of its expenditure on account of call centre data expenditure and business centre charges. Learned Authorised Representative submitted, under TNMM, only broad similarity of functions are to be examined. In support of his contention, he drew attention of the Bench to the information submitted in the annual report of the company. 26. Learned Departmental Representative supporting the view of the Transfer Pricing Officer/DRP submitted, this company cannot be treated as comparable as it has not exported service. Further, he submitted that company being a consistent loss making company cannot be treated as comparable. 27. We have considered the submissions of the parties and perused the material available on record. It is observed, the main reason for which the company has been rejected is, it is not into export activities. From the data available before us, we cannot conclusively form an opinion regarding the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervations of the Assessing Officer/learned Commissioner (Appeals). 33. Having heard the parties and perused the material on record, we are of the considered opinion that comparability of these two companies have to be gone into afresh by the Assessing Officer/Transfer Pricing Officer after examining the submissions of the assessee in detail in the context of facts and material brought on record. 34. The only other issue contested by the assessee in ground no.9 relates to claim of risk adjustment. In the transfer pricing study report, assessee while computing the arm's length price has claimed risk adjustment of 10.65%. the Transfer Pricing Officer, however, did not allow any risk adjustment observing that the assessee does not undertake market risk, operation risk and attrition risk. Further, he observed doing business with a single customer, though, carries its own set of risk related to market and capital investment, however, he commented, assessee has not properly quantified the risk borne by it vis-a-vis the selected comparables. He also observed, in case of comparable selected by the assessee in transfer pricing study operating margins are computed without making adjustm ..... X X X X Extracts X X X X X X X X Extracts X X X X
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