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TMI Blog2019 (5) TMI 1690X X X X Extracts X X X X X X X X Extracts X X X X ..... O, AM AND SHRI VIKAS AWASTHY, JM For the Appellant : Shri M. P. Lohia, Shri Rajendra Agiwal Shri Prateek Dalmia For the Respondent : Shri S. B. Prasad ORDER PER D. KARUNAKARA RAO, AM: This appeal is filed by the assessee against the order of DRP-3, Mumbai dated 14.09.2016 as well as against the assessment order dated 13.10.2016 passed u/s 143(3) r.w.s. 144C(13) of the Act for the assessment year 2012-13. 2. Briefly stated the relevant facts include that the assessee is a 100% subsidiary wholly owned company of AMCC, USA. The assessee is engaged in the business of designing and development of chip, integrated circuits and storage components and allied services. The assessee is a captive supplier of the above products of the services to its wholly company and entered into international transactions with its AEs aggregating to ₹ 52,40,01,000/-. During the TP study, the assessee considered the TNM Method as the most appropriate method. The assessee s PLI is OP/OC at 16.11%. The assessee considered five comparables for the single year and the PLI of these comparables is 2.87%. Since the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of the comparables and after considering working capital adjustments, the final set of comparables for benchmarking International Transactions pertaining to provision of design engg. services for A.Y. 2012- 13 is taken as under : Sr.No. Name of the Company PLI=OP/OC% After Working Capital Adjt. 1 XS Cad India Pvt. Ltd. (Transcend Design) 20.79 20.91 2 Pentamedia Graphics Ltd. 12.26 8.43 3 Genesys International Corporation Ltd. 29.92 25.18 4 Acropetal Technolofies Ltd. 15.12 15.12 5 Tata Elxi Ltd. 12.62 12.62 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its holding company AMCC, USA. In this regard, ld. Counsel submitted that the comparables (i) E Clerx Services Ltd. and (ii) Genesys International Corporation Ltd. are required to be excluded as they are completely of dissimilar functions . Further, ld. Counsel submitted that the TPO/DRP/Assessing Officer was of the views that both these comparables as well as the assessee are engaged in the KPO services and, therefore, they are of similar functions. In this regard, ld. Counsel brought our attention to the order of the TPO. Referring to para 5.8 of sub-para (viii) of the order of the TPO relating to E Clerx Services Ltd., ld. Counsel read out the reasoning given by the TPO for inclusion of the said comparable as a good comparable. For the sake of completeness, the relevant lines of the TPO s order are extracted hereunder :- (viii) E Clerx Services Ltd: The assessee took the objection to include this company on the ground that it is engaged in the Data Analytics. I have perused the objection of the assessee. Rule 10TA (g) of the Income Tax Rules, gives the definition KPO. In this definition, Data Analytics and Design Engineering service has been conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the services actually rendered are important and mere the companies falling in the KPO group cannot give rise to a good comparable. Relying on the decision of Hon ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd. vs. CIT (2015) 377 ITR 533 (Del), the Hon ble Delhi High Court held that E clerx Services Ltd. is not a good comparable. For the sake of completeness, the relevant paras 4 to 6 are extracted as follows :- 4. As far as the exclusion of ESL is concerned, the ITAT appears to have relied upon para 31 of the decision of this Court in Rampgreen Solutions Pvt Ltd v. Commissioner of Income Tax (2015) 377 ITR 533 (Del). The ITAT has extracted para 31 of the said decision where inter alia the Court pointed out that: ...31......We find it difficult to accept this view as it is contrary to the fundamental rationale of determining ALP by comparing controlled transactions/entities with similar uncontrolled transactions/entities. ITeS encompasses a wide spectrum of services that use Information Technology based delivery. Such services could include rendering highly technical services by qualified technical personnel, ITA 102/2015 Page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT) (27 October 2016). (iv) Hyundai Motors India Engineering Pvt. Ltd. v. DCIT (ITA No.255/Hyd/14) (AY 2009-10) (Hyderabad ITAT) (31 July 2014). 14. The ld. Counsel submitted that mere grouping into KPO companies does not create a good comparable unless the functions of the comparables under characteristic of the services rendered are similar. For the sake of completeness, the relevant extracts from the decision of Pune Bench of the Tribunal in the case of Vistcon Engineering Center (India) Pvt. Ltd. (supra) are extracted hereunder :- 27. So far as Genesys International Corporation Ltd. is concerned the Ld. Counsel for the assessee submitted that the above company is functionally different. The company is engaged in providing Geographical information services comprising Photogrammertry, Remote Sensing, Cartography, Data conversion and related computer based services according to the information provided in the annual report. Further, it owns intangible assets of computer and GIS database and has acquired new business. Referring to the copy of the assessment order for A.Y. 2010-11 and 2011-12 he submitted that the TPO, based on the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. On the other hand, ld. DR for the Revenue relied heavily on the orders of the DRP/TPO/Assessing Officer. 16. We heard both the sides on this issue and perused the orders of the revenue authorities and the Paper Book filed before us. We also considered the judgemental laws placed before us. On hearing both the sides, we find the core issue for adjudication is that if company becomes a good comparable merely because the same is engaged in KPO activity like the assessee. We find, now it is decided at the level of the Hon ble Delhi High Court that the similarity of functions/characteristic of services rendered by the assessee/comparables for identifying the good comparables assessee s importance. It is an undisputed fact, in the present case, that the DRP/TPO/Assessing Officer are categorically explained that with the similarity in grouping of KPO companies, the assessee s company is good enough for identifying a good comparable. This view is not approved by the various decisions cited by the ld. Counsel for the assessee before the Tribunal. We have already extracted the relevant portion from the judgements of the Hon ble High Court as well as the ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 19. On hearing both the sides, we observed that in principle, the risk adjustments is required to be granted in favour the assessee and therefore, the order of the Assessing Officer/DRP/TPO requires to be reversed on this issue. For the sake of completeness, we extract the relevant paras 18 to 20 of the said order of the Tribunal (supra) as follows :- 18. The next issue raised vide ground of objection No.2.2 is against the claim of risk adjustment. The plea of assessee that risk adjustment should have been granted to the assessee for differences between functional and risk profile of comparable companies vis- -vis assessee. The learned Authorized Representative for the assessee in this regard pointed out that the assessee was risk mitigated entity, whereas the comparables were risk bearing. He further stated that the assessee had furnished the working as per the decision of Bangalore Bench of Tribunal in Philips Software Centre Pvt. Ltd. Vs. ACIT reported in 26 SOT 226 and the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. reported in 114 ITD 448. The learned Authorized Representative for the assessee in this regard placed reliance on the ratio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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