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TMI Blog2019 (10) TMI 856X X X X Extracts X X X X X X X X Extracts X X X X ..... nd round of litigation before the Tribunal. Earlier, the Tribunal, vide ITA No.3955/Del/2010, order dated 8th May, 2015, had restored the issue back to the file of the DRP on the ground that the assessee has raised a number of contentions before the DRP and none of these contentions were considered by the DRP and they have not passed a speaking order in this case. Subsequently, the DRP, vide order dated 28th June, 2016, passed the order. The Assessing Officer, vide order dated 31st August, 2016, revised the TP adjustment to ₹ 1,28,30,310/- as against the original adjustment of ₹ 1,77,38,869/-. 3. Aggrieved with such order of the DRP/Assessing Officer/TPO, the assessee is in appeal before the Tribunal by raising the following grounds:- "That on the facts and circumstances of the case, and in law:- 1. The Ld. AO following the directions of the Ld. TPO/ Hon'ble DRP erred on facts and in law in making an upward adjustment to the income of the appellant by INR 1,28,30,310 holding that the international transactions of the appellant pertaining to provision of Information Technology Enabled Services ('ITeS') does not satisfy the arm's length principle envisaged under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings observed that the assessee has undertaken the following international transaction:- S.No. Description of transaction Method Value (in Rs.) 1. IT enabled back office services TNMM 120,277,639 5. The assessee selected the PLI based on the operating cost for determining the arm's length result. The PLI used is the net operating profit based on cost which is the ratio of net operating profit to total expenses. The assessee selected 14 comparables and the mean margin of the comparables was 11.72%. Since the margin of the assessee was 12.20%, it was explained that the transaction of the assessee with its AE is at arm's length from the perspective of the Indian transfer pricing regulations. 6. However, the TPO rejected the economic analysis submitted by the assessee and undertook a fresh search and proposed a TP adjustment of ₹ 1,74,55,101/- on account of the provision of ITES. The assessee approached the DRP. The DRP directed the correction of margins of certain comparables, however, no relief was granted on the exclusion/inclusion of the comparables. When the assessee filed an appeal before the Tribunal, the Tribunal, vide ITA No.3955/Del/2010, order date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpgreen Solutions vs. CIT, reported in 60 taxman.com 355, he submitted that the Hon'ble High Court in the said decision has held that Vishal Information Technologies Limited could not be considered as a comparable since its business model was completely different. Referring to the decision of the Tribunal in assessee's own case in ITA No.1713/Del/2014, order dated 08.05.2015, for assessment year 2009-10, he submitted that the Tribunal has directed the exclusion of Vishal Information Technologies Limited on the ground that it has a different business model which rendered it incomparable with the assessee. Referring to the decision of the Hon'ble High Court in assessee's own case, vide ITA No.894/2015, order dated 23.11.2015, he submitted that the order of the Tribunal has been upheld by the Hon'ble High Court and the appeal filed by the Revenue has been dismissed. Relying on various other decisions as per the synopsis filed, he submitted that Vishal Information Technologies Limited cannot be compared with that of the assessee and, hence, should be excluded from the list of comparables. 9.1. So far as Asit. C. Mehta Financial Services Ltd. (Seg.) is concerned, he submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich are not given. The comparable company being a service provider, it is important to understand the nature of these purchases/inventories in order to determine its comparability with the assessee as it is unusual for back office service providers to hold inventory. Further this comparable has seen a wide range of fluctuations in its margins. Referring to the decision of the Mumbai Bench in the case of M/s Deutsche Networking Services Pvt. Ltd. vs. DCIT, in ITA No.8972/Mum/2010, order dated 14th September, 2018, he submitted that this company was excluded from the list of comparables on the ground that the financials of the company for the assessment year 2006-07 and 2007-08 were not reliable as no separate segmental appeared in the audited financials of the entity. Further, the reliability of the financials was also doubted on account of fraudulent activities committed within the company. Referring to the decision of the Tribunal in the case of ITO vs. CRM Services India Pvt. Ltd., vide ITA No.4068/Del/2009 and 4796/Del/2010, order dated 30th June, 2011, he submitted that the Tribunal in the said decision has held that the business reputation of Rastogi group owning Maple eSolu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on the order of the TPO/DRP. He submitted that the DRP has thoroughly discussed the issues raised by the assessee and has rightly directed for inclusion of the four comparables. Therefore, these four comparables should not be excluded from the list of comparables. So far as working capital adjustment is concerned, the ld. DR submitted that the assessee has to substantiate with evidence to the satisfaction of the TPO/A.O./DRP for working capital adjustment which the assessee has failed to do. He accordingly submitted that the order of the A.O./TPO/DRP should be upheld. 13. We have considered the rival arguments made by both the sides, perused the orders of the A.O./TPO/DRP and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the assessee, in the instant case, is engaged in the provision of information technology (IT) enabled back office support service in the nature of customized proprietary research and analytic support to Copal group. The assessee in the year under consideration has entered into international transaction to the tune of ₹ 12,02,77,693/- on account of provision of Information Technolog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ind the Hon'ble Delhi High Court in the case of Rampgreen Solutions (supra) has upheld the exclusion of Vishal Information Technologies Limited on account of its distinct business model by observing as under:- "20. ………………… Any factor, which has an influence on the PLI, would be material and it would be necessary to ensure that the comparables are also equally subjected to the influence of such factors as the tested party. This would, obviously, include business environment; the nature and functions performed by the tested party and the comparable entities; the value addition in respect of products and services provided by parties; the business model; and the assets and resources employed…….. ………………………………………………………………………………...... 38. In our view, even Vishal could not be considered as a comparable, as admittedly, its business model was completely different. Admittedly, Vishal's expenditure on employmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyee cost filter, but, also due to amalgamation during the year which has changed the business model of the company. In view of the above discussion and in view of the various decisions placed on the paper book excluding Asit C Mehta Financial Services Ltd. (segmental) from the list of comparables, we direct the TPO/A.O./DRP to exclude this company from the list of comparables. 17. So far as Maple eSolutions Limited is concerned, we are of the considered opinion that this company also should be excluded from the list of comparables on account of functional dissimilarities. The statement of income of the comparable includes change in inventories and purchases, the details of which are not given. Further, the comparable has seen a wide range of fluctuations in its margin and its financial data is not reliable since the promoters were involved in fraud. We find the coordinate Bench of the Tribunal in the case of CRM Services India (P) ltd. (supra) has held that the business reputation of Rastogi group owning Maple eSolutions Ltd. and Triton Corp Limited is under serious indictment and these companies cannot be taken as comparables. The Mumbai Bench of the Tribunal in the case of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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