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TMI Blog2019 (10) TMI 986X X X X Extracts X X X X X X X X Extracts X X X X ..... cy. Such fact also makes the said concern as functionally not comparable to the assessee. Though segmental details are available but the segmental are at fault as large part of expenses have been booked as an unallocable expenditure. In such facts and circumstances, we are of the view that the concern mPhasis is not functionally comparable to the assessee, hence the same is not to be included in the final list of said comparables, while benchmarking the international transactions undertaken by the assessee. - Appeal of the assessee is allowed. - ITA No:- 583/Del/2017 - - - Dated:- 25-9-2019 - Ms. Sushma Chowla, Judicial Member And Shri B.R.R. Kumar, Accountant Member For the Appellant : Sh. Himanshu Sinha, Adv, Ms. Vrinda Tulshan, Adv And Sh. Bhuvan Dhoopar, Adv For the Respondent : Sh. Himanshu Aggarwal, C.A. ORDER PER SUSHMA CHOWLA, JM: The present appeal filed by assessee is against order of AO passed under 144C r.w.s. 143(3) relating to assessment year 2006-07 of the Income Tax Act, 1961 (in short the Act ). 2. The assessee has raised the following ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4.3 holding that at the time of creating/ maintaining the TP documentation, the Appellant could have procured current/ single year data (i.e. FY 2005-06 data) from sources other than the electronic databases, when infact practically no such other sources were available in case of most companies; 4.4. rejecting certain comparables on ground of significant related party transactions ('RPT') and accordingly, disregarding the fact that RPT data was not available at the time of preparation of TP documentation; 4.5. by resorting to arbitrary rejection of low-profit/ loss making companies (forming part of the final set of companies selected by the Appellant as comparables) based on erroneous and inconsistent reasons, and thereby retaining only high-profit making companies, thus deriving an incorrect/ unrepresentative industry set for benchmarking the operating profit margin earned by the Appellant, and further, thus demonstrating an intention to arrive at a preformulated opinion without complete and adequate application of mind with the single-minded intention of making an addition to the returned income of the Appellant; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l transaction by applying PLI of OP/OC. The AO made reference to the TPO under section 92CA(1) of the Act, who in turn passed order under section 92CA(3) of the Act. In final analysis eight concerns were selected as functionally comparable to the assessee. The mean margins of the said companies worked out to 23.56% as against the margin of the assessee at 14.89% and hence the upward adjustment made in the hands of the assessee. After the proceedings of the DRP, the finally selected concerns total led to seven, and the mean margins worked to 22.62%. The assessee in its appeal before the Tribunal was aggrieved by the inclusion of two concerns i.e. Infosys Technologies Limited and mPhasis BFL Limited. The Tribunal vide its order dated 23.4.2014 remitted the matter back to the file of AO/TPO. However, the TPO included both the concerns in the second round of proceeding, and the assessee is aggrieved by the order of the AO/DRP/TPO in this regard. Hence the present appeal before us. 6. We have heard the rival contentions and perused the record. The first concern with which the assessee is aggrieved is Infosys Technologies Limited. The case of the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aspect the assessee had filed detailed submissions before the TPO which have not been considered by the TPO. Our attention was drawn to page 12 of the order of the TPO and the final analysis at page 34 of the order of the TPO. The ld. AR for the assessee further drew our attention to the annual report of the said concern and referred to the business profile of the group which was engaged in different fields. He further pointed out that mPhasis BFL Limited also was a product company and it owned various product and such a concern could not be compared with the assessee. Another aspect which was pointed out by the learned AR for the assessee was the cost of Revenue totaling 260 Crores included Software Development charges of 161 Crores approximately, which in turn was an expenditure in foreign currency. In other words, it was a concern which was providing onsite services to the third party; whereas the assessee was working on offside module. The Learned AR for the assessee fairly admitted that the segmentals of the said concern were available and the TPO picked up the segment of the provision of I.T. Services but (a) the functional profile being different, could not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... M-tech Technology Rental Lab which were used by mPhasis for providing services to its AE s. In other words the said concern owns product, as against the assessee not owning any product. At this juncture, we hold that the said concern is not functionally comparable to the assessee. Further, we also note the fact pointed out by the learned AR for the assessee that the business model of mPhasis was different wherein it was providing onsite services to its third parties, wherein out of Software charges of ₹ 161 Crores debited to cost of Revenue, sum of ₹ 157 Crores had been incurred in foreign currency. Such fact also makes the said concern as functionally not comparable to the assessee. Though segmental details are available but the segmental are at fault as large part of expenses have been booked as an unallocable expenditure. In such facts and circumstances, we are of the view that the concern mPhasis is not functionally comparable to the assessee, hence the same is not to be included in the final list of said comparables, while benchmarking the international transactions undertaken by the assessee. In final analysis, we direct the AO to exclude both the concerns Info ..... X X X X Extracts X X X X X X X X Extracts X X X X
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