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TMI Blog2017 (4) TMI 1331X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain comparable companies - Held that:- Since we have directed for exclusion of six companies from the final set of TPO and further the directions of the DRP are to be given effect on certain issues therefore the TPO / AO is directed to recompute the arms length price after giving effect to this order of the Tribunal and also consider the benefit of proviso to section 92C(2) of the Act. X X X X Extracts X X X X X X X X Extracts X X X X ..... ain comparable companies selected by the Appellants in its TP documentation; c) The learned AO /TPO erred, by rejecting certain comparable companies additionally proposed by the Appellant during TP assessment proceedings which are functionaly similar; Although some of the companies were chosen as comparables in the transfer pricing study, upon consideration of more details some of these comparables in case found to be not comparable for different reasons, Appellant craves leave to urge the same at the time or hearing. 8. The learned DRP has erred in rejecting certain comparable companies, which were neither contested by the Appellant nor the TPO as they meet the comparable criteria. 9. The learned AO/TPO erred, in law and in facts, by wrongly computing the operating margins of some of the comparable companies considered in the TP order; 10. The learned AO/TPO erred, in law and in facts, by not taking into consideration foreign exchange gain/loss as operating in nature for the purpose of computing the operating margin of the Appellant as well as the comparable companies; 11. The learned AO/TPO erred, in law and in facts, by incorrectly computing the working capital adjustment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e companies already accepted from the set of the assessee's comparables. Accordingly, the TPO has determined the arms length price by considering ten companies as under: 4. After allowing the negative working capital adjustment of 1.74% the TPO has arrived at the adjusted mean margin of 29.85%. Accordingly, the TPO has proposed an adjustment u/s. 92CA of ₹ 11,67,33,647/-. The assessee challenged the action of the TPO before the DRP. The DRP has not accepted the objections of the assessee however suomoto rejected one company from the set of comparables on the ground of different business model. Thus the DRP has excluded M/s. Accentia Technologies Limited from the set of comparables. After the directions of the DRP, the final assessment order was passed by considering the nine comparable companies. Before the Tribunal, the assessee is seeking exclusion of six comparable companies out the nine companies from the set of comparables are as under: S.No. Company Name Turnover as per TP Order (in INR crores) 1. M/s. Universal Print Systems Limited (Segmental) 6.18 2. M/s. Informed Technologies India Limited 1.94 3. M/s. Infosys BPO Limited 1312.41 4. M/s. Microgenetic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... We find force in the submission of the Id. AR that this company cannot be a comparable as the turnover of this company is 260.18 crores while in the case of the Assessee, the turnover is around ₹ 11 crores only. While making the selection of comparables, the turnover filter, in our opinion, has to be the basis for selection. A company having turnover of ₹ 11 crores cannot be compared with a company which is having turnover of ₹ 260 crores which is more than 23 times the turnover of the Assessee. This company cannot be regarded to be in equal size to the Assessee. We, accordingly, direct the AO to exclude this company out of the comparables. (ii) Infosys BPO Ltd. :- In this case also we noted the turnover in respect of this Company is ₹ 649.56 crores while the turnover of the Assessee company is around ₹ 11 crores which is much more than 65 times of the Assessee's turnover. We, therefore, do not find any illegality or infirmity in the order of CIT(A) in excluding this Company out of the comparables. Accordingly, we confirm the order of the CIT(A). (iii) Wipro Ltd.:- After hearing the rival submissions, we noted that the CIT(A) applying the tur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hing the said tolerance range of turnover either on the lower side or on the higher side. In view of the above discussion as well as facts and circumstances of the case, we direct the AO / TPO to exclude the above mentioned six companies from the set of comparables. 9. The next issue raised by the assessee is regarding the foreign exchange fluctuation gain to be treated as operating in nature. We have heard the ld. AR as well as ld. DR and considered the relevant material on record. The ld. AR of the assessee has submitted that the DRP has directed the AO / TPO to consider the foreign exchange fluctuation gain as operating in nature however the TPO / AO has not given effect to the directions of the DRP while passing the final order. At the outset we note that the DRP while dealing with this issue has directed the AO / TPO in para 11.1 as under. "11.1 Panel: In relation to objection regarding treating foreign exchange gain / loss as non-operating in nature by the TPO, the decision of Bangalore Bench of ITAT in the case of SAPLab India Pvt Ltd (2010-TII-44-ITATBANG- TP) is applicable. Following the same, objection of the assessee is accepted and Assessing officer / TPO is directed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ck, bank charges and miscellaneous income. While working out the operating profit, only items of receipts and expenditure, which have direct relation for determining the profit have to be taken into account. Thus the TPO is correct in holding exclusion of provision for doubtful debts, provision written back, bank charges, miscellaneous income etc. as non-operating items.
As regards factual error in computation if any, TPO/ AO is directed to verify the same and correct it if there is any inaccuracy in the same."
13. The assessee has contented that the TPO has not given effect to the directions of the DRP. Accordingly, we direct the AO / TPO to give effect to the directions of the DRP on this issue.
14. Since we have directed for exclusion of six companies from the final set of TPO and further the directions of the DRP are to be given effect on certain issues therefore the TPO / AO is directed to recompute the arms length price after giving effect to this order of the Tribunal and also consider the benefit of proviso to section 92C(2) of the Act.
15. In the result the appeal of the assessee is partly allowed. Pronounced in the open court on this 13th day of April, 2017 X X X X Extracts X X X X X X X X Extracts X X X X
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