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TMI Blog2019 (7) TMI 655X X X X Extracts X X X X X X X X Extracts X X X X ..... ed [ 2016 (12) TMI 1600 - BOMBAY HIGH COURT] where it has been held that a concern can be excluded though it was originally selected by assessee as comparable, where the assessee establishes that it was not functionally comparable. Hence, we direct the Assessing Officer to exclude Saket Projects Limited from the final list of comparables for BSS segment of assessee. TSR Darashaw Limited stands covered by order of Tribunal in assessment year 2008-09, wherein the said concern was excluded being not functionally comparable to the assessee. Following the same parity of reasoning, we direct that the said concern be excluded. We find no merit in the observations of TPO that a concern which was selected by assessee in its TP study in earlier years cannot be excluded in this year, since the finding of TPO has been reversed by Tribunal in assessment year 2008-09. Saket Projects Limited and TSR Darashaw Limited are excluded from final list of comparables, then the margins in BSS segment would be within +/- 5% range and there is no need to adjudicate the issue of exclusion of ICRA Online Limited and risk adjustment as they would become academic. In view thereof, we do not adjudicate ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es. However, before us, AR for the assessee has pointed out that the financials of Agrima Consultants International Ltd. which were available in public domain covers period only upto 31.12.2008. Since the said concern was unlisted company, data for the three months was not available in public domain. We find that the Hon ble Bombay High Court in CIT Vs. PTC Software (I) (P) Ltd.[ 2018 (4) TMI 1002 - BOMBAY HIGH COURT] have held that provisions of Rule 10B(4) of the Income Tax Rules are clear in as much as it obliges that data to be used for comparability analysis should be of the same financial year in which international transactions were entered into by tested parties. Applying the said principle, we hold that in case the data for same financial year as followed by assessee is not available in public domain, then the margins of said concern could not be applied to benchmark the international transactions of said segment. In this regard, as this issue was not raised before any of the authorities below, this needs verification. Hence, we remit this issue back to the file of Assessing Officer/TPO to carry out necessary verification and decide the issue. Cosmic Global Ltd. is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 44C(1) of the Income-tax Act, 1961 (in short the Act ). 2. Both the appeals of connected assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. We are first referring to the facts and issues in ITA No.377/PUN/2014. 3. The assessee in ITA No.377/PUN/2014 has raised the following grounds of appeal:- On the facts and in the circumstances of the case and in law, the Hon'ble DRP and consequentially the learned AO have: Ground 1 General ground challenging the transfer pricing adjustment of ₹ 498.73 Lacs Erred in making transfer pricing adjustment amounting to ₹ 498.73 Lacs to the value of international transactions of HTI by rejecting the analysis undertaken by HTI to determine arm's length price for its international transactions. International transactions pertaining to management and administrative cost allocation Ground 2 Addition to total income treating the Arm's Length Price ('ALP') of costs allocated by AEs for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies can also be considered as comparable based on updated data Erred in non-considering certain additional companies identified by the assessee based on updated data specifically where the learned AO/TPO have used updated data. Ground 10 Inclusion of companies having extra ordinary margins Erred in including companies with extra ordinary margins in the set of comparable companies. Other grounds of objections Ground 11 Non consideration of contemporaneous data Erred in conducting an analysis based on information subsequently available for determining arm's length price which was not available at the lime of complying with the transfer pricing regulations. Ground 12 Denial of adjustment for risk differences Erred in denying adjustment on account of differences in the functional and risk profile of comparable companies vis-a-via the assessee. Ground 13 Levy of interest under section 234B of the Act Erred l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;s length price for the year under consideration (Without prejudice) Without prejudice to other grounds of appeal, the Appellant prays that the arm's length price for the management and administrative cost allocation transaction for the year under consideration to be determined as per the terms agreed by the Appellant in the APA entered into for same transaction. 5. The additional grounds of appeal raised are legal issues and does not require investigation into the facts, hence the same are admitted for adjudication. 6. The ground of appeal No.1 raised by assessee is general, hence does not need any adjudication. 7. The issue raised in grounds of appeal No.2, 3 and additional ground of appeal No.17 is against international transaction pertaining to management and administrative cost allocation by associated enterprise. 8. The learned Authorized Representative for the assessee pointed out that the issue stands settled by APAs made under section 92CC of the Act in the case of assessee itself in later years. The learned Authorized Representative for the assessee further pointed out that similar is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inally selected comparables was 29.09% and the TPO thus proposed an upward adjustment of ₹ 2,22,53,700/-. 13. The learned Authorized Representative for the assessee pointed out that though it has raised the issues against three concerns which were finally selected but in case Saket Projects Limited and TSR Darashaw Limited are excluded from final list of comparables, which issue raised by way of ground of appeal No.4 (part) and additional ground of appeal No.15, then margins shown by assessee would be within +/- 5% of margins of comparables. The learned Authorized Representative for the assessee pointed out that in assessment year 2008-09, the Tribunal had excluded Saket Projects Limited on the ground of functionality difference and also because of fluctuating margins. The learned Authorized Representative for the assessee fairly pointed out that the assessee had initially selected this concern but on a later stage, the assessee wanted exclusion of the said concern. In this regard, he placed reliance on the decision of the Hon ble Bombay High Court in CIT Vs. Tata Power Solar Systems Limited in ITA No.1120/2014, judgment dated 16.12.2016, wherein it has been h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parable. Hence, we direct the Assessing Officer to exclude Saket Projects Limited from the final list of comparables for BSS segment of assessee. 17. The next concern which the assessee wants to be excluded from final list of comparables under BSS segment is TSR Darashaw Limited. The TPO had selected the said concern on the ground that it was engaged in similar functions as performed by assessee and it was selected by assessee itself in TP report in earlier years and also in TP order in earlier years. He was of the view that merely because the profit margins were high, it does not mean that the same should be excluded from final set of comparables. The plea of assessee that the said concern was not functionally comparable was not accepted and final list was drawn. 18. The learned Authorized Representative for the assessee pointed out that the said concern TSR Darashaw Limited had developed its own software for payroll processing and income was earned through the said software. So, it was engaged in sale of software and also was providing services on account of patented software and hence, was not functionally comparable. In this regard, it was also p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by exclusion / inclusion of certain concerns and has made submissions with regard to the same. Vide ground of appeal No.7, the assessee is aggrieved by inclusion of Vardaan Projects Limited on the ground that (a) it was functionally non-comparable and (b) it was earning extraordinary margins during the year under consideration. 24. The learned Authorized Representative for the assessee pointed out that Vardaan Projects Ltd. was rendering services of financial structuring, financial analysis, financial arrangements, etc. and was also providing services like valuation for compliance with International Finance Reporting Standards (IFRS) and others. The said company had reported the entire operating revenue under the head Income from Engineering Consultancy Services but part of income consisted income earned from rendering financial and management consultancy services, for which no segmental information was available, hence the said concern could not be selected as comparable. The other issue which was raised in the hands of said concern was supernormal margins earned by the said concern. 25. The learned Departmental Representative for the Revenue on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Authorized Representative for the assessee has drawn our attention to the functional analysis of the said concern and has pointed out that there were no changes in functionality during the year when compared with earlier year. In such circumstances, we find no merit in the order of TPO in excluding CG VAK from the final list of comparables. Hence, we direct him to include the same for benchmarking transactions in ITES segment. The ground of appeal No.8 raised by assessee is thus, allowed. 30. Now, coming to grounds of appeal No.9 and 10, wherein the assessee has pleaded that certain additional companies were identified based on updated data on the basis of revised filters applied by TPO and the same should have been included in final list of comparables. 31. The learned Authorized Representative for the assessee pointed out that before adjudicating the grounds of appeal No.9 and 10, additional ground of appeal No.16 be adjudicated first. Under the additional ground of appeal No.16, the assessee is aggrieved by inclusion of Agrima Consultants International Ltd. on the ground that it has different year end and the information with regard to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... work and was making substantial vendor payments. In this regard, reliance was placed on the decision in PTC Software (India) Pvt. Ltd. Vs. DCIT in ITA No.336/PN/2014, relating to assessment year 2009-10, order dated 31.10.2014. It was further pointed out that the said decision has been approved by the Hon ble Bombay High Court in Income Tax Appeal No.598 of 2016, vide order dated 16.04.2018 on the ground that where Cosmic Global Ltd. had outsource its services to vendor, then such a concern could not be included amongst the comparables to determine arm's length price. 36. On perusal of record, we find that both before the DRP / TPO, the assessee had objected to inclusion of Cosmic Global Ltd. in the final list of comparables for Application Engineering Services segment on the ground of supernormal profitability. However, before us, it has raised another issue that the said concern cannot be considered as comparable as it had outsourced major portion of its work and has vendor payment of about ₹ 3 crores. 37. We find that the Hon ble Bombay High Court while deciding the issue in the case of PTC Software (I) Pvt. Ltd. (supra) had held that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 42. On perusal of record, we find that as far as the concern Mahindra Consulting Engineers Ltd. is concerned, the assessee himself had included the said concern as comparable to benchmark its transactions under AE segment. The TPO and DRP had applied the margins of said concern as part of final list of comparables. However, the assessee now contends that on further analysis, the said concern Mahindra Consulting Engineers Ltd. was not comparable due to functional non-comparability in the said year. The first objection which has been raised is with regard to functional comparability. The assessee before us has pointed out that Mahindra Consulting Engineers Ltd. was engaged in rendering consultancy services in connection with infrastructure related projects, and assessee is also rendering service in ITES segment. Hence, the same cannot be held to be not comparable to the assessee on this ground alone, when assessee had in TP study report included the said concern as comparable. No issue in this regard was raised before TPO and DRP. Further, the assessee has failed to establish its claim of the said company being not functionally comparable. We have in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation Engineering Services. It may be pointed out that ground of appeal relates to both the segments i.e. BSS segment and AE segment; but in respect of BSS segment, the learned Authorized Representative for the assessee pointed out that the said issue be not decided as its margins were within +/- 5% range. However, in respect of AE segment, it was pointed out that the ratio laid down in the case of Sony India Pvt. Ltd. reported in 114 ITD 448 (Delhi-Trib.), be applied to allow 20% as it was not possible to quantify the risk adjustment. It was also pointed out that the said directions have been given in assessee s own case for assessment year 2008-09. Accordingly, we hold that risk adjustment as directed in the case of Sony India Pvt. Ltd. (supra) should be allowed on operating margins of comparables in the provision of Application Engineering Services segment. The ground of appeal No.12 is thus, partly allowed. 47. The issue in ground of appeal No.13 raised by assessee of levy of interest under section 234B of the Act is consequential, hence the same is dismissed. 48. The issue in ground of appeal No.14 against initiation of penalty proceedings is pr ..... X X X X Extracts X X X X X X X X Extracts X X X X
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