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TMI Blog2019 (6) TMI 437X X X X Extracts X X X X X X X X Extracts X X X X ..... is from the south pole. Whereas IT services include software development services, IT enabled services means services rendered with the already developed software. As IT and ITeS services are not comparable, the assessee rendering only IT services cannot be compared with a company which renders both IT and ITeS. In view of the foregoing discussion, we are satisfied that Vama Industries Ltd. is not a functionally comparable company and the same should be excluded from the list of comparables. AR submitted that if Vama Industries Ltd. is excluded then its profit margin would fall within +/-5% range and there would be no need to examine other comparables challenged in the instant appeal. In view of our decision on exclusion of Vama Industries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with Profit Level Indicator (PLI) of Operating Profit to Total Cost (OP/TC). Such profit rate of the assessee was 14.72%. Certain comparables were chosen with average PLI of 15.03%. This is how, the assessee showed that its international transaction was at ALP. The Assessing Officer (AO) took up the benchmarking analysis at his own. He rejected certain companies from the assessee's list of comparables and introduced certain fresh companies. In this manner, he shortlisted 4 companies with their average operating profit margin at 22.18%. By applying this profit rate as arm's length margin to the assessee's international transaction, the AO made transfer pricing addition amounting to ₹ 1,26,92,794/-. In the first appeal, the ld. CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO/TPO. It goes without saying that the object of assessment is to determine the income in respect of which the assessee is rightly chargeable to tax. As the income not originally offered for taxation, if otherwise chargeable, is required to be included in the total income, in the same breath, any income wrongly included in the total income, which is otherwise not chargeable, should be excluded. There can be no estoppel against the provisions of the Act. Extending this proposition further to the context of the transfer pricing, if an assessee fails to report an otherwise comparable case, then the TPO is obliged to include it in the list of comparables, and in the same manner, if the assessee wrongly reported an incomparable case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia) P. Ltd. (2017) 390 ITR 615 (P&H). In view of the foregoing discussion, we do not find any substance in the preliminary objection taken by the ld. DR. 6. Now we turn to examine the actual comparability of Vama Industries Ltd. Before proceeding to analyze the comparability of this company, it would be befitting to consider the functional profile of the assessee. At the cost of repetition, it is noted that the assessee is engaged in providing software development services and quality assurance (testing) services and the later are also admittedly in the nature of software development services. The nature of services has not been disputed by the AO. We have gone through the Annual report of Vama Industries Ltd. for the year under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue from software development services is only a sum of ₹ 6.02 lakh and the entire remaining revenue of ₹ 3.22 crore is from engineering services. There can be no dispute on the proposition that engineering services are quite distinct from software development services in terms of skill, effort and expertise etc. An effective comparison of the assessee's lone software development services can be made only with a company which is also either rendering software development services alone or if it is doing some other activity also, then necessary information for computing operating profit rate from the software development services, can be separately identified. If a company is rendering software development services and also engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... des revenues from Software development services but also from I.T. enabled services as well. It goes without saying that I.T. services and I.T. enabled services are as distinct in connotation and nature as north pole is from the south pole. Whereas IT services include software development services, IT enabled services means services rendered with the already developed software. As IT and ITeS services are not comparable, the assessee rendering only IT services cannot be compared with a company which renders both IT and ITeS. In view of the foregoing discussion, we are satisfied that Vama Industries Ltd. is not a functionally comparable company and the same should be excluded from the list of comparables. 9. The ld. AR submitted that if Vam ..... X X X X Extracts X X X X X X X X Extracts X X X X
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