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TMI Blog2016 (7) TMI 1406X X X X Extracts X X X X X X X X Extracts X X X X ..... f export turnover as envisaged by Sub-clause (4) of Explanation 2 below Sub-section (8) of Section 10A and the total turnover has not been defined in this Section. 3. On the facts and in the circumstances of the case the learned CIT(A) erred in holding that M/s Celestial Biolabs Ltd. in Software development segment; M/s Aditya Birla Minacs Worldwide Ltd.; M/s Coral hubs Ltd., M/s Eclerx Services Ltd., M/s Jindal Intellicom Pvt. Ltd., M/s Moldtek Technologies Ltd. and M/s Allsec Technologies Ltd. in ITES segment; M/s Priya International Ltd. (seg) and ICC International Ltd. (seg) in Marketing support services segment because of abnormal profits and losses margin, without giving reason how functions discharged, assets deployed and risks assumed on such companies were different from assessee company. 4. On the facts and in the circumstances of the case the learned CIT(A) has erred in holding that the TPO was not justified in applying the employee cost filter and directed to include M/s Indus Networks Ltd. which was excluded in the software development services segment by using this filter. 5. On the facts and circumstances of the case the learned CIT(A) has erred in objecting th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Q) erred in upholding the ld. TPO's approach of disregarding application of multiple year data/prior year data as used by the respondent in the TP documentation and holding that current year (I.e. FY 2007-08) data for companies should be used for comparability. 4. That the ld. CIT(A) erred in upholding the ld. TPO's approach of collecting selective information of the companies by exercising powers granted to him under section 133(6) of the Act that was not available to the respondent in the public domain and relying on the same for comparability purposes. 5. That the ld. CIT(A) erred in upholding the TPO's approach of ignoring the limited risk nature of the services provided by the respondent and in not providing an appropriate adjustment towards risk differential, even when the full-fledged entrepreneurial companies are selected as comparables. 6. That the ld. CIT(A) erred in upholding the learned TPO's approach of using the related party transactions (RPT) filter greater than 25% for exclusion of comparable instead of RPT filter > 15% filter as applied y the respondent. 7. That the learned CIT(A) erred in upholding the TPO's approach of using the expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee supported the order of the ld. CIT(A). He also submitted a chart regarding exclusion of various comparables including some comparables which are being objected to by the revenue as per ground No. 2 of this appeal such as M/s. Celestial Labs Ltd., on the basis of functional dissimilarity by way of placing reliance on various Tribunal orders. 10. We have considered the rival submissions. First of all, we feel it proper to re-produce the relevant paras from the order of the ld. CIT(A) as per which, he has decided the issue regarding application of abnormal profits and losses - filter. This issue has been decided by the ld. CIT(A) as per para -100 & 101 of his order and the same are reproduced hereunder; "100. It was argued that the TPO had considered certain comparable with abnormal profits and negative margins. The Delhi Bench of the Hon'ble ITAT had in the case of Sony India (P)Ltd., v DCIT (2008) 114 ITD 448(Del.) upheld the objection of assessee on inclusion of a comparable when distinctive differences like size and turnover materially affected performance or prices of products. It had been held in E-Gain Communication Pvt. Ltd., (2008)-TIOL-282-ITAT-Pune) that ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch differences has to be made. Hence, by respectfully following this judgment of the Hon'ble Delhi High Court, we hold that the order of the ld. CIT(A) on his issue that certain companies should be excluded from the list of comparables merely on the basis of abnormal profits and losses is not sustainable. Although, the same company may be excluded if such exclusion is proper because of other reasons such a functional dissimilarities etc. but we find that as per the order of the ld. CIT(A), the is no discussion about some of the comparable companies on the basis of other aspects such as functional dissimilarity etc., and in the absence of any finding of the ld. CIT(A) on these aspects, we do not consider it proper to examine and decide these aspects in the absence of any finding on these aspects. In our considered opinion, the matter should go back to the file of the ld. CIT(A) for his decision on these aspects. We hold accordingly and set aside the order of the ld. CIT(A) and restore back this issue to his file for fresh decision for exclusion of these companies which are objected to by the revenue in ground No. 3 in the light of various arguments of the assessee on the basis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder of the ld. CIT(A). Accordingly, ground No. 5 of the revenue is rejected. 16. Regarding ground No. 6, ld. DR of the revenue supported the order of the ld. AO/TPO whereas the ld. AR of the assessee supported the order of the ld. CIT(A). 17. We have considered the rival submissions. We find that this issue was decided by the ld. CIT(A) as per para No. 96 to 99 of his order which are reproduced below; "96. On consideration of the appellant's contentions, I am unable to agree with the TPO that in a short time horizon of current year's business, a mere change in financial year ending would make significant difference to companies that are functionally similar, operate in a similar business environment, and face the same business cycle. If the TPO had evidence that such a thing had happened in the case of a particular company, it was for him to point out what exact difference had the change of accounting year made to the financial results of that company and whether it would not be possible to restate or reconcile those financial results for a different accounting period without significant change in the net profit margin or any other parameters he considered relevant. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e able to provide the data of the same company for the same financial year by adding the data of two years and then making exclusion of preceding period data and subsequent period data and hence, we feel it proper to set aside this matter back to the file of ld. CIT(A) for a fresh decision and if the assessee can furnish data of such comparable for the relevant financial year then such company may be considered as a comparable and not without that. Ld. CIT(A) should pass necessary order as per law after providing reasonable opportunity of being heard to both sides. Ground No. 6 is allowed for statistical purposes. 19. Regarding ground No. 7 of the revenue's appeal, ld. DR of the revenue placed reliance on the order of the AO/TPO whereas the ld. AR of the assessee supported the order of the ld. CIT(A). Regarding company M/s. Avani Cincom Technologies Ltd., he placed reliance on the Tribunal order rendered in the case of 3DPLM Software Solutions Pvt. Ltd., in IT(TP)A No. 1303/Bang/2012 (AY: 2008-09). Copy available on pages 12 to 17 of case law compendium. 20. Regarding M/s. Celestial Biolabs Ltd., objection raised as per ground No. 8, it was submitted by the ld. AR of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this company cannot be considered as a comparable. In the present case also, assessment year involved is AY: 2008-09 for which relevant AY: is FY: 2007-08 and therefore, respectfully following this Tribunal order, we decline to interfere with the order of ld. CIT(A) on this issue. Accordingly, ground No. 10 of the revenue is rejected. 25. Regarding ground No. 11, ld. DR of the revenue supported the order of the AO/TPO whereas the ld. AR of the assessee submitted that the assessee company held to be functionally dissimilar as per the same Tribunal order rendered in the case of IGS Imaging Services (I) Pvt. Ltd., (Supra). Copy available on pages 163 to 165 of case law compendium. 26. We have considered the rival submissions. We find that in the case of IGS Imaging (I) Pvt. Ltd(Supra), the Tribunal has followed another Tribunal order rendered in the case of Symphony Marketing Solutions India Pvt. Ltd.,(Supra) and as per the relevant portion of that Tribunal order rendered in the case of Symphony Marketing Solutions India Pvt. Ltd.,(Supra) reproduced in the Tribunal order rendered in the case of IGS Imaging (I) Pvt. Ltd., (Supra), it was held by the Tribunal that this company is pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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