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TMI Blog2018 (1) TMI 795X X X X Extracts X X X X X X X X Extracts X X X X ..... (TPO)to determine the arm's length price (ALP) of the transactions. He issued a draft order to the assessee. After receiving the order of the TPO, it filed objections before the DRP. Considering the available material, the DRP issued directions to the AO. Accordingly, the AO completed the assessment. 2.1. First ground of appeal is about Transfer Pricing (TP) adjustments of Rs. 2. 48 crores. During the TP proceedings, the TPO observed that Franklin Templeton Investment Group was one of the largest financial services group, that it offered investment growth and value style equity products as well as several focused sector portfolios, that Franklin Templeton Holding Ltd, Mauritius was 100% subsidiary of Templeton Asset Management Ltd, Singapore, that it was holding company of Franklin Templeton group companies in India, that the assessee had entered into two IT. s in to with its AE. s. He obserded that the assessee was earning a Markup of 10% and 15% (on cost)on back-office-support-services(BOSS)and SDC respectively, that TNMM was selected as the most appropriate method for benchmarking the IT. s, that it had used three years'data to work out a weighted average for computing Profit L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs applied by the assessee, that he had used the data that was not available in public domain, that he cherry picked the comparables to determine ALP, that he did not share the information, called for u/s. 133(6)of the Act, with the assessee though the same was used against it. 2.3. 1. With regard to AMFSL, the AR argued that the company was engaged in SD/Portfolio management services/Investment activities, that segmental information in respect of IT. s and SD was not available, that an extraordinary event(amalgamation) had taken place during the year under consideration. He relied upon certain case laws, wherein the Tribunal had rejected AMSFL to be a valid comparable. About Maple, the AR contended that it was engaged in providing call Centre services, that 99. 78% of its total revenue was earned from call centres, that the functions, assets and risks were distinct and different from the functions assets and risks for providing data processing services, that the assessee was providing non-voice based services, that intangible assets consisted 21. 93% of the total fixed assets of Maple, that the assessee did not have any intangible asset. He relied upon about a dozen of cases wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unction at functional level, that the back office services included voice call or data processing, that both were similar, that specific products were not to be considered. About Cosmic Global, he stated that the assessee, itself had included it in the list of comparables for the AY. s. 2007-08 and 2008-09. About Datamatics, he stated that the TPO had used the Segmentals, that assessee itself used the comparabale in AY. 2007-08 and 2008-09. About Apex, he relied upon the order of the TPO and DRP. With regard to Spanco, he stated that TPO had used segmental data only. The DR further argued that the assessee was confronted with the comparable selected on 20/ 07/2009 and 17/10/17(Pg. 353 &355 of the PB), that manufacturing segment was not relevant to decide the BPO issue, that for comparing turnover 1/10or 10 time of the turn-over could be considered. He referred to cases of PCM Stresscom Overseas Ventures Ltd. (85taxmann 165)and Daikin Air-conditioning India Pvt. Ltd. (67 taxmann. com. 119)and stated that in absence of opportunity of being heard not given the matter should be restored back to the file of the AO. Referring to the order of Acusis Software India P. Ltd. (77taxman. com. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as revealed by the notice. The notice talks of 13 comparables. Even if we reject the assertion of the AR that Pg. 9 is cut and paste case of other assessee, the fact remains that the search process claimed to be adopted by The TPO(order Pg. 9)and the show cause notice issued to the assessee are not based on same data. This proves flawed search process on part of the TPO. A vitiated process would bear invalid results. 2.4.2. Now, we would like to discuss the validity of the individual comparables, objected to by the assessee. First we would take up the matter of AMFL(Formerly known as Nucleus Netsoft & GIS (India) Ltd. ). A perusal of the web site and annual report of AMFL (Pages 8, 29, 37, 326, 387, 408 and 410 of the PB)reveal that it is engaged in software development, portfolio management services and investment activities, that segmental results are not available about the various activities carried out by it. It is also a fact that an extra ordinary event, amalgamation, had taken place(Pg. 384 and 388 of the PB) during the year under consideration. In the matter of American Express(India)Pvt. Ltd. (64 taxmann. com 280), the Tribunal has held that AMFL cannot be treated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... com 281, has held that a company cannot be considered as comparable because of exceptional financial results due to mergers/demergers. Similar view has been bolstered by the Delhi Bench of the Tribunal in several cases including Ciena India (P. ) Ltd. v. Dy. CIT [2015] 154 ITD 349/57 taxmann. com 329 (Delhi - Trib. )a vide its order dated 23. 4. 2015. In view of the fact that there was a merger by way of amalgamation during the year itself, we hold that Nucleus Netsoft and GIS (India) Ltd. cannot be considered as comparable due to this extraordinary financial event. Accordingly, we direct to eliminate this company from the final set of comparables. " Respectfully, following the above order of the Tribunal, we hold that AMFL should be taken out of the final list of the valid comparables. Maple, as per the pages 863 and 1222 of the PB, is engaged in providing call centre services, that more than 90% of its revenue is arising from call center, that intangible assets constitute more than 20% of the total fixed assets of Maple. If we compare the FAR analysis of both the companies it is clear that the assessee was justified in arguing that Maple should be treated an invalid comparable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Maple eSolutions Limited from the list of comparables, we are unable to accept the contention of the ld. DR in this regard. It is more so because no contrary view has been brought by the ld. DR to our notice. Respectfully following the precedents, we direct the exclusion of this case from the final list of comparables. " Considering the above, we hold that the DRP should have excluded Maple from the list of comparables. We find that one of the comparables, GTL, fails on the filters applied by the TPO himself. It had earned export income of Rs. 4. 24 lakhs(0. 14%)that was a miniscule part of its income for the year under appeal. Thus, it fails the export-filter of 25% applied by the TPO. Pg. 1222f of the PB prove that GTL had three divisions namely(i)Insulator division (ii)Telcom division and (iii)BPO division, that it was manufacturing composite insulators and was also in the process of developing a wide range of insulators, that the Telcom division was providing cable joining kits, that it had earned 42. 83% of its total revenue from insulator division, that 44. 13% income earned by GTL was arising out of Telcom division. Considering these facts we hold that GTL should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the peculiar facts and circumstances of case and for the year under appeal only. 2.4. We would now take up the issue of remanding the matter to the departmental authorities, as argued by the DR. We find that in the case of PCM Stresscon Overseas(supra)the assessee had objected to the jurisdiction of the TPO, that it was argued that in year under appeal it had not entered into any IT with its AE. s, that the AO did not address the basic jurisdictional issue before making a reference to the TPO. Considering these facts and deciding the writ petition filed by the assessee, the Hon'ble Calcutta High Court had held that there was violation of principle of natural justice. Consequently, the order of the TPO was set aside by the Hon'ble Court and the AO was directed to rehear the basic issue raised by the assessee. In our opinion, the case does not help the cause of Revenue in any manner. Facts of the case under consideration are totally different from the facts of PCM Stresscon Overseas(supra). In the matter under appeal there is clear cut non application of mind on part of the TPO. In the matter of Daikin Air Conditioning(supra)the TPO had not provided any opportunity to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel fairly accepted that the assessee has not done so. He frankly stated that as long as assessee has no grievance with the comparables selected by the TPO there was no need to examine the appropriateness of comparables. We also asked learned counsel for the assessee to step wise process whereby assessee's comparables were selected, and asked him to take us through the screenshots of various stages in narrowing down the results found in the database to the comparables eventually selected. Learned counsel took us through the transfer pricing study. While learned counsel took us through the transfer pricing study and explained the selection process, he could not show the process of 'qualitative screening' which resulted in selection of 20 comparables out of 463 comparables found in the preceding stage of selection process. When asked as to what was the objective criterion adopted in this narrowing down process, learned counsel did not have much to say. He, however, prayed that the matter be remitted to the file of the Assessing Officer so that assessee has a reasonable opportunity of explaining these issues, which, according to him, were not raised earlier. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . An erring officer does not deserve a new innings to continue unnecessary litigation. TP proceedings, like any other proceedings under the Act, have to be completed in a proper manner and the record should prove that, while making TP adjustment, the TPO had applied his mind to the facts and circumstances of the case. Posts of TPO. s were specifically created to determine the ALP of the IT. s. Considering the seriousness of the job the AO. s are not allowed to decide the value of IT. s. The scheme of the Act casts an added responsibility on the TPO. s to pass a reasoned, valid and proper order. In the case before us, we find that the TPO had committed several mistakes in the search proceedings and sending notices. So, we are of the opinion that it is not a fit case to be remanded. We again make it clear that our order is limited to present case only. It should not be considered a precedent for remitting/not remitting back the matters to the file of the departmental authorities. First Ground of appeal is decided in favour of the assessee. 3. Ground No. 2 is about disallowance of Rs. 23. 06 lakhs made u/s. 10A of the Act. During the assessment proceedings, the AO held that expendit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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