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TMI Blog2020 (4) TMI 402X X X X Extracts X X X X X X X X Extracts X X X X ..... 19 dated 08.08.2019. The learned AR further submitted that if the appeal of Revenue is dismissed, the cross objection filed by assessee would become infructuous. 3. Shri Uodal Raj Singh & Shri A. Mohan representing the Department fairly admitted that the appeal of Revenue has tax effect less than Rs. 50 lacs, therefore, the same would be covered by CBDT Circular no. 17/2019 (supra). 4. Both sides heard. The learned AR has filed calculation sheet indicating tax effect involved in the appeal by Revenue. As per computation, the tax effect involved in the appeal is Rs. 11,90,734/-. The learned DR has admitted that the appeal of Revenue suffers from low tax effect in view of latest CBDT Circular. Undisputedly, the tax effect involved in appeal is less than the monetary limit prescribed by the recent CBDT Circular No. 17/2019 (supra) for filing of appeals before the Tribunal by the Department. The CBDT vide circular dated 08.08.2019 (supra) has amended para 3 of Circular no. 3 of 2018 dated 11.07.2018 thereby enhancing monetary limit of tax effect from Rs. 20 lacs to Rs. 50 lacs for filing of appeals by the Department before the Tribunal. Thus, without going into merit of the issues r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alled for under section 133(6) of the Act. 3.3 The learned AO erred on facts and in law in upholding the direction of DRP in not appreciating that, in conducting the fresh comparability analysis, the TPO has erred in using data which was not available as on the specified date (as defined in Section 92F(iv) of the Act read with Rule 10B(4) of the Income tax Rules, 1962 ('the Rules'). Thus, the Appellant prays that the fresh benchmarking analysis conducted by the learned TPO is liable to be quashed." Additional Ground of Appeal : "9. The appellant submits that the following comparables which are not functionally comparable with the appellant should be excluded : i) Acropetal Technologies Limited ii) Cepha Imaging Private Limited iii) Polaris Retail Infotech Limited" 10. The brief facts of the case as emanating from the records are: The assessee company is a captive service provider to its parent, SmartStream Technologies Ltd., U.K (hereinafter referred to as "STL"). The assessee is engaged in the business of development and distribution of software used in banking and finance industry. During the period relevant to assessment year under appeal, the assessee entered int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions of the DRP, the Assessing Officer made final assessment order, against which the assessee is in appeal before us. 12. The learned AR submitted that assessee in the present appeal has confined his submissions only to inclusion and exclusion of some of the comparables selected by the TPO/DRP. The learned AR pointed that assessee wants inclusion of : (i) PSI Data Systems Ltd.; (ii) SIP Technologies & Exports Ltd.; and, (iii) TVS Infotech Ltd. The TPO and the DRP have excluded the aforesaid three companies from the list of comparables only on the ground that these are loss making companies. The learned AR submitted that admittedly the aforesaid three companies have incurred loss in assessment year 2009-10, but all these companies are not 'persistent loss' making companies. The Tribunal in various decisions have held that comparables should be rejected only if they are persistent loss making, i.e. the comparable is having loss in three consecutive financial years including the relevant assessment year and immediately two preceding years. In support of his contention, the learned AR placed reliance on the decision of John Deere India Pvt. Ltd. vs ACIT in ITA No. 2236/PUN/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbai) xi) Tesco Hindustan Service Centre (P.) Ltd. vs DCIT, 77 taxmann.com 48 (Bangalore) xii) Sharp Software Development (P.) Ltd. vs DCIT, 76 taxmann.com 340 (Bangalore) xiii) John Deere India (P.) Ltd. vs DCIT, 77 taxmann.com 7 (Pune) 14. In respect of E-Zest, the learned AR submitted that the said company is engaged in Knowledge Processing Outsourcing (KPO) and ITeS services. It is a product engineering and software development company having expertise in cloud, SAAS and business intelligence. The said company is also engaged in implementing ERP and related consultancy services. Since financial statement for the year ended 31.03.2009 was not available in public domain, the information of financial performance was obtained from the official website of the company. The learned AR further pointed that the TPO selected E-Zest as comparable without affording opportunity to assessee to file objections against selection of the said company. The learned AR referred to para 6.1.4 of the order of TPO to contend that the TPO had issued show cause only in respect of inclusion of KALS and Ocimum Bio Solutions India Ltd. There was no reference to E-Zest in the said show cause notice. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inclusion of PSI Data Systems Ltd., SIP Technologies & Exports Ltd. and TVS Infotech Ltd. in the list of comparables. The said companies have been excluded by the DRP on the ground that they are loss making companies. However, the learned AR has pointed from the financials of these companies that they were profit making companies in financial year 2006-07. The Tribunal, in the case of John Deere (supra) has held that only persistent loss making companies are to be excluded from the list of comparables. The relevant extract of the findings of the Tribunal on this issue reads as under :- "21.2 ........... The contention of the assessee is that the said company is not a persistent loss making company. Only for the reason that the comparable has suffered loss in one year the same should not be rejected. We find merit in the submission of the Ld. A.R. In the case of Bobst India Pvt. Ltd. Vs. DCIT in ITA No. 1380/PN/2010 for A.Y. 2006-07 the Tribunal has observed that only persistent loss making companies should be held as not good comparable. The Tribunal held that the 'persistent loss' means, continuous loss for more than 3 years. Thus, where the comparable entity is not under pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. vs DCIT (supra), the Pune Bench of Tribunal has considered the issue whether KALS is comparable to software development company. The Tribunal held that KALS is engaged in sale of software products and hence, the said company is not functionally comparable with entity engaged in designing and developing software. The decision of the Tribunal has been upheld by the Hon'ble Bombay High Court in the case of PCIT vs PTC Software India Pvt. Ltd., [2019] 101 taxmann.com 117. Similar view has been taken by the Pune Bench of Tribunal in the case of John Deere (supra), though the assessment year under consideration was assessment year 2008-09. No material has been placed on record by the Revenue to show that there was change in the activities carried out by the assessee or KALS, respectively in assessment year 2009-10. We find merit in the contentions of the assessee. Hence, we hold that KALS being functionally different should be excluded from the list of comparables. E-Zest : The assessee is seeking exclusion of E-Zest on the ground that it is engaged in KPO and ITeS services, hence it is functionally different from the assessee. We find that the Pune Bench of Tribunal in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ris Retail Infotech Limited before the DRP. The contention of the assessee is that these companies are functionally different and hence should be excluded from the list of comparables. 25. The exercise of conducting transfer pricing study is to ascertain arm's length price of international transactions of assessee with its AE. If in the process, the assessee has selected any wrong comparable, it is the duty of TPO to examine and reject the same before ascertaining arm's length price of the international transactions. An inclusion of certain entity in the list of comparables by the assessee in transfer pricing study report cannot act as estoppel against the assessee if, at a later stage, assessee seeks exclusion of the said comparable on account of functional disparity or it fails to qualify any of the filters applied. Our view is fortified by the decision of Tribunal in the case of DCIT vs Quark Systems Pvt. Ltd., 38 SOT 307 (Chandigarh)(SB). Therefore, we admit the additional ground of appeal raised by the assessee and restore it to the file of TPO/Assessing Officer for de novo examination of the comparables. Accordingly, additional ground no. 9 of the appeal is allowed for stat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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