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TMI Blog2018 (1) TMI 325X X X X Extracts X X X X X X X X Extracts X X X X ..... year is not available. If from the available data on record, the results for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings.”. Thus resorted this issue back to the file of the TPO/AO with the direction to include the aforesaid comparable, if from the available data on record, the results for financial year can reasonably be extrapolated. Inclusion of amount pertaining to ESOPs twice in the operating cost base of the assessee - Held that:- . In the present case, it appears that the directions given by the ld. DRP has not been appreciated by the TPO in right perspective. It also appears that the TPO without appreciating the documentary evidences furnished by the assessee made this addition in the cost base taken by him. We, therefore, by considering the totality of the facts, set aside this issue back to the file of the TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. Treatment of the foreign exchange fluctuation gain/loss as a non-operating item while computing the operating margin of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt of Delhi; 1.6. excluding certain comparables considered by the Appellant in its TP documentation/ fresh search on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and risks assumed; 1.7 rejecting/ not including certain companies as comparable, which are otherwise functionally similar, merely on the ground that they follow accounting year other than financial year; 1.8. not appropriately considering the functions, assets and risk profile of the companies used for comparison with the Appellant, thereby including in the final comparable set certain companies with completely different functional profile; 1.9. committing errors in the computation of the operating profit margins of the Appellant and of the comparables selected for benchmarking the international transaction; 1.10. introducing companies in the final comparable set that signify high element of risk as opposed to the Appellant who is a captive service provider bearing limited risk and also not accepting the risk adjustment carried out by the Appellant even though the Ld. TPO had proposed to grant the same in the showcause notice; 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Helios Matheson Information Technology Ltd. 12.41 viii. Infomile Technologies Ltd. 5.08 ix. Larsen and Toubro Infotech Ltd. 23.65 x. Prism Informatics Ltd. 12.77 xi. RS Software (India) Ltd. 16.39 xii. Thinksoft Global Ltd. 12.74 xiii. Mindtree India Ltd. 16.16 xiv. Persistent Systems ltd. 24.93 xv. R Systems International ltd. 3.09 xvi. Sasken Communication Ltd. 17.70 xvii. Caliber Point Business Solutions Ltd. 5.11 xviii . Ybrant Digital Ltd. (LGS Global Ltd.) 19.35 xix. Zylog Systems Ltd. 27.59 Arithmetic Mean 10.53% 6. However, the TPO accepted few of the comparables and also rejected another comparables selected by the assessee. Finally, following 14 comparables were selected by the TPO: S.No. Comparables Margins i. Akshay Software Tech. Ltd. 7.77% ii. Cigniti Technologies Ltd. 8.28% iii. Evoke Technologies 11.57% iv. Larsen and Toubro Infotech Ltd. 23.79% v. RS Software (India) Ltd. 15.43% vi. Mindtree India Ltd. 19.19% vii. Persistent Systems Ltd. 26.92% viii. Sasken Communication Ltd. 14.58% ix. Ybrant Digital Ltd. (LGS Global Ltd.) 19.34% x. Zylo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services which is functionally similar to the Assessee's software development services. The TPO has pointed out significant functional differences. The panel agrees with the same. Assessee could not bring out facts correctly to counter the TPO findings. 3. CTIL Ltd. ('CTIL') This company fails the employee cost filter The Assessee in the Form 35A (page 74-77) has detailed its contention against the application of the said filter. On the baas of the same, it is prayed that this comparable should be accepted. It fails a valid filter adopted by the TPO. Hence action of the TPO is upheld 4. Caliber Point Business Solutions Limited (Caliber Point) The company is Functionally different as it generates income mainly from BPO services. Further, this company is failing the different financial ending filter. IT segment of Caliber is engaged in the provision of Software development services. Since, Caliber is Functionally comparable to the Assessee's it should be included in the comparables set. In relation to different financial ending filter, the Assessee refers to its contention against the application of the said filler raised in the Form 35A (Page 51-60 of form 35A). ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... financial year then the same cannot be included in the list of comparables selected for benchmarking the international transaction. Therefore, the ITAT has held that if the comparable is functionally same as that of tested party then 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 for financial year can reasonably be extrapolated then the comparable cannot be excluded solely on the ground that the comparables have different financial year endings." 12. We, therefore, by keeping in view the ratio laid down in the aforesaid referred to case, resorted this issue back to the file of the TPO/AO with the direction to include the aforesaid comparable, if from the available data on record, the results for financial year can reasonably be extrapolated. 13. Vide Ground No. 1.2, the grievance of the assessee relates to the inclusion of the amount of ₹ 3,33,10,161/- pertaining to ESOPs twice in the operating cost base of the assessee. 14. This issue was agitated by the assessee before the ld. DRP by stating that certain expenses were considered twice, thus, rendering the results spurio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... countant. It was stated that the TPO had made this addition without considering the documentary evidences duly certified by the auditors. Therefore, the addition of ₹ 3,33,10,161/- may be deleted from the cost base taken by the TPO and if it has been done than no adjustment is required on account of transfer price which will come within the range of ±5%. 16. In his rival submissions the ld. DR strongly supported the orders of the authorities below. 17. We have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it appears that the directions given by the ld. DRP has not been appreciated by the TPO in right perspective. It also appears that the TPO without appreciating the documentary evidences furnished by the assessee made this addition in the cost base taken by him. We, therefore, by considering the totality of the facts, set aside this issue back to the file of the TPO to be adjudicated afresh in accordance with law after providing due and reasonable opportunity of being heard to the assessee. 18. The next issue vide Ground No. 1.3 relates to the treatment of the foreign exchange flu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent between the Associated Enterprise (AE) and the Assessee stated that for the specified products and services provided by the Assessee, it "shall raise invoices on Ameriprise USA on the basis of a cost plus pricing methodology." The ITAT was therefore right in holding that the AO was not justified in considering the foreign exchange loss as a nonoperating cost." 23. A similar view has also been taken in the case of Pr. CIT, Delhi-I Vs Agilis Information Technologies International (I) Pvt. Ltd. (supra) wherein it has been held as under: "3. It is pointed out by the learned counsel for the Assessee that reliance placed by the Revenue on the Safe Harbour Notification dated 18th September 2013 will be of no avail to the Revenue since that notice is prospective in nature. It is seen that by the order dated 6th January 2016 in ITA No. 17/2016 (Pr. Commissioner of Income Tax-3 Vs Finserv India Pvt. Ltd.), this Court has accepted the above plea of the Assessee. Even otherwise, the decisions referred to by the ITAT in the impugned order on the issue also answer the question in favour of the Assessee and against the Revenue." 24. In view of the above, this issue is decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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