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TMI Blog2017 (11) TMI 1856X X X X Extracts X X X X X X X X Extracts X X X X ..... cientific Technology Ltd. The assessee on the other hand, is engaged in providing back office support service. Accordingly, we hold that the said concern is not comparable to the assessee and to be excluded from final list of comparables. Fortune Infotech Ltd - The assessee is operating in ITES segment, wherein the services are being provided to associated enterprises, whereas the concern Fortune Infotech Ltd. had its own unique web based software, through which it provides services to its customers. The said concern is not comparable to the entity engaged in ITES segment, has been deliberated upon by the Delhi Bench of Tribunal in Equant Solutions India Pvt. Ltd. Vs. DCIT [ 2016 (1) TMI 1260 - ITAT DELHI] and it has been held that the concern develops its own software for performing specialized services in medical transcription and patient record management and the same was held to be not functionally comparable to an entity engaged in ITES segment. We find merit in the claim of assessee that once the concern is functionally not comparable to the assessee, then the same cannot be included in final list of comparables. Excluding certain comparables in software segment - exclusion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant using Transactional Net Margin Method ('TNMM') for benchmarking its international transactions pertaining to provision of ITES services to the AE, and thereby modifying the set of comparables. In doing so, the Ld DRP/AO specifically erred in: a) Including the companies which are not functionally comparable to the ITES services rendered by the appellant in final set of comparables on an adhoc basis, thereby resorting to cherry-picking of comparables; b) Rejecting companies functionally similar to that of the appellant's business operations of provision of ITES services from final set of comparables 3. The Ld. DRP/AO erred in not adjudicating the additional functionally comparable companies provided by the appellant to the Ld DRP. 4. The Ld. DRP/AO erred in considering the single year data for the comparables i.e. data for FY 2009-10 only and disregarding multiple year data which was considered by the appellant in accordance with the provisions of Rule 108(4) of the Income-tax Rule, 1962 ("Rules"). 5. The Ld. DRP / AO erred in not allowing an adjustment for the difference between the level of risk borne/assets employed by the comparables and the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t) and Thirdware Solutions Ltd. It is prayed that the abovementioned companies being functionally non-comparable to the Respondent ought to be excluded in the final set of comparable companies in the Software Services segment. 1.2 On the facts and in the circumstances of the case and in law the Ld DRP has erred in upholding the action of the TPO / AO in excluding a comparable company namely Akshay Software Technologies Ltd. by holding that a loss making company cannot be compared to the Respondent which is operating on a 'cost-plus' business model. It is prayed that the comparable company namely Akshay Software Technologies Ltd. not being a persistent loss maker ought to be included in the final set of comparable companies in the Software Services segment. 1.3 Your Respondent craves leave to add to alter, amend, vary, omit or substitute the aforesaid ground of cross objections or add a new ground or grounds of cross objections at any time before or at the time of hearing of the appeal as they may be advised. 6. First, we take up the appeal of assessee, wherein the assessee is aggrieved by the order of Dispute Resolution Panel (DRP) / Assessing Officer in making the tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bles and found both the transactions not to be at arm's length price. In the segment of provision of software services, the TPO proposed by way of adjustment of ₹ 5.16 crores and in the segment of provision of back office support services, an upward adjustment of ₹ 2.90 crores was proposed. The total TP adjustment proposed by the TPO was ₹ 8.08 crores. The Assessing Officer issued draft assessment order to the assessee, against which the assessee filed objections before the DRP. The DRP directed the Assessing Officer/TPO to examine the computation of margins of comparable companies and also to compute working capital adjustment. The DRP also directed to exclude and include certain comparables in both the segments. Another direction of the DRP was to correct the PLI margins computed by the TPO both for the software services and ITES segment. Based on the directions of DRP, the Assessing Officer/TPO worked out the revised comparable set of margins for both the segments. In respect of segment of provision of software services, the adjusted margins as per the TPO i.e. OP/TC was worked out in respect of five comparables finally selected by the DRP and the arithmeti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tative for the assessee placed reliance on the decisions of different Benches of Tribunal. 14. The learned Departmental Representative for the Revenue however, strongly opposed the same. 15. We have heard the rival contentions and perused the record. While benchmarking international transactions, the endeavour needs to be made that the margins of assessee are to be compared with margins of concerns which are functionally comparable. In the absence of such comparability, the margins of independent concerns cannot be applied to benchmark the arm's length price of international transactions undertaken by the assessee. The learned Authorized Representative for the assessee before us has pointed out that in ITES segment, wherein an upward adjustment of ₹ 1.82 crores has been made by the DRP/TPO/Assessing Officer, the assessee would be within margins in case the margins of three concerns are excluded. 16. The first concern which is picked up by the assessee for exclusion is Accentia Technologies Ltd. The said concern was pointed out to be not functionally comparable as it was engaged in providing services of medical transcription which was not at all comparable to the back o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e heard the rival contentions and perused the record. The assessee is operating in ITES segment, wherein the services are being provided to associated enterprises, whereas the concern Fortune Infotech Ltd. had its own unique web based software, through which it provides services to its customers. The said concern is not comparable to the entity engaged in ITES segment, has been deliberated upon by the Delhi Bench of Tribunal in Equant Solutions India Pvt. Ltd. Vs. DCIT (supra) and it has been held that the concern develops its own software for performing specialized services in medical transcription and patient record management and the same was held to be not functionally comparable to an entity engaged in ITES segment. We find merit in the claim of assessee that once the concern is functionally not comparable to the assessee, then the same cannot be included in final list of comparables. Accordingly, we hold so and direct the Assessing Officer / TPO to exclude the same. The learned Authorized Representative for the assessee here pointed out that in case these three concerns are to be excluded from final list of comparables, then the margins shown by the assessee are within +/- 5% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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