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TMI Blog2020 (8) TMI 478X X X X Extracts X X X X X X X X Extracts X X X X ..... only to data relating to the financial year of the assessee in which the international transaction has been entered into? (ii) Whether the Tribunal was right in granting risk adjustments of 2% on adhoc basis, when the assessee neither demonstrated the same nor quantified the adjustment? (iii). Whether the Tribunal was right in directing and granting working capital adjustment for the assessee based on the order for the assessment year 2008-2009 when it has not demonstrated the influnce the working capital intensity on the transfer price of the assessee? (iv). Whether the Tribunal was right in directing for removal comparable companies merely on the basis of higher turnover as compared to the tested party when no correlation exists between the turnover and profits in service industry? (v). Whether the Tribunal was right in holding that the provisions of Section 14A read with Rule 8D will have no applicability if there is no exempt income earned or received during the previous year though the disallowance is linked to expenditure incurred on investment fetching exempt income? The background facts: 2.1. The assessee is a wholly owned subsidiary of McKinsey & Co Inc., USA (A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er Pricing Officer ('TPO' for brevity) arrived at the final set of comparables, listed out names of 10 companies with the margin in percentage; computing the average margin at 16.62%. TPO stated that the margin of the assessee is only 10.06% as per the show cause notice dated 11.09.2015 and there is a short fall of 6.56% and the adjustment to the ALP was worked. The TPO held that there is an upward adjustment of Rs. 6,16,39,089/- required to the ALP of International transactions entered into by the assessee. The TPO made it clear that the findings and discussions are only confined to the assessment year 2012-13. 2.3. Pursuant to the order of the TPO dated 27.01.2016, the Assessment Officer drew the draft Assessment Order dated 09.02.2016. The assessee filed their objections before the Dispute Resolution Panel - II, Bangalore (hereinafter 'DRP' for brevity) on 15.03.2016. The DRP by it's order dated 14.09.2016 issued directions as per Section 144C(5) of the Act and giving effect to, order was passed by the TPO on 25.11.2016 and the Assessing Officer on 30.11.2017. Aggrieved by the same, the assessee preferred appeal to the Tribunal. The Tribunal with regard to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the decision of the Honble Division Bench of this Court in CIT Vs. Chettinad Logistics (P) Ltd (2017) 80 taxmann.com 221. 3. The Revenue is on appeal on all the five grounds decided by the Tribunal. 4. We have elaborately heard Mr.S.Swaminathan, learned Senior Standing counsel assisted by Ms.V.Pushpa Venkatesan, learned standing counsel appearing for the appellant and Mr.Nishant Thakkar, learned counsel assisted by Ms.Jasmine Amalsadwala and Mr.R.Venkatanarayanan, learned counsel appearing for the respondent. 5. It was argued by Mr.M.Swaminathan, learned Senior Standing Counsel that the order passed by the Tribunal while remanding two of the issues out of the five issues arising in the matter, the Tribunal has not assigned any reasons and the Transfer Pricing Officer would not be in a position to decipher as to the scope of the remand and this would be a good reason to interfere with the impugned order. With regard to exclusion of Infosys BPO Limited, it is submitted that the DRP had elaborately considered this issue and without referring to the reasons assigned, the Tribunal had mechanically followed the decision in the assessee's own case for the assessment year 2008-09 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd [(2016) 381 ITR 216] was also taken note of in PCIT Vs. Sanvih Info Group Private Limited (I.T.Appeal No.420 of 2019 (Del.HC) dated 16.05.2019. The Court noted the discussion in Chry Capital Investment Advisors India (P.) Ltd.., Vs. Deputy Commissioner of Income Tax, [2015 376 ITR 183 (Del)], wherein it was stated that Infosys Technologies Ltd. cannot be compared with the respondent assessee (therein), as seen from the financial data and it should be excluded from the list of comparables for the reason that it was a giant Company in the area of development of software. 8. In PCIT Vs. Symphony Marketing Solutions India Pvt. Ltd., [2020 113 taxmann.com 77 (Delhi)], it was held that where assessee was rendering ITES services to its AE as a captive service provider, a company having huge turnover and brand value assuming all risks leading to higher profits, could not be accepted as comparable. The Court noted the decision in the case of CIT Vs. Pentari Water India (P) Ltd., (2016) 69 taxmann.com 180 (Bom) and the decision of the High Court of Delhi in CIT V. Agnity India Technologies (P.) Ltd., (2013) ITA 1204/2011 dated 10.07.2013. Similar view was taken by the High Court of Kar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the Division Bench of this Court in T.C.A.No.137 of 2018 has not been admitted on the said question of law which goes to show that the Revenue has accepted the decision of the Tribunal to the said extent and therefore we find that the Tribunal was right in directing the Assessing Officer to exclude Cosmic Global Limited from the list of comparables. 13. The next issue is with regard to making suitable adjustment to account for differences in working capital position, wherein, the Tribunal remanded the matter to the Assessing officer to rework the working capital adjustment. We find that the issue to be fully factual and no substantial question of law flows from it. While on this issue, we refer to the decision of the Division Bench of this Court in the case of Commissioner of Income Tax Vs. Same Deutz-Fahr India (P) Ltd., [(2018) 253 Taxman 32 (madras)], wherein it was held that the right of appeal under Section 260A of the Act is not automatic and it is limited right of appeal restricted only to cases which involve substantial questions of law and it is not open to the High Court to sit in appeal over the factual findings arrived at by the Tribunal. Similar view was taken b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of the Bangalore ITAT in Zyme Solutions in IT(TP).A.No.465/Bang/2015, wherein the Tribunal held that the DRP ought not to have directed the TPO to consider the risk adjustment at 1%. Secondly, the DRP took up for consideration the alternate submission of the assessee based on the 'Sharpe's ratio' calculation. However the contention stood rejected on the ground that the claim of the assessee has not sufficiently substantiated. The Tribunal while examining the correctness of the finding of the DRP, took note of the decision in M/s.KOB Medical Textiles Pvt. Ltd. Vs. DCIT in ITA.NO.855/Mds/2015 dated 09.03.2017 and directed the Assessing Officer to grant 2% towards risk adjustment on adhoc basis. 16. The Revenue argued before us stating that such adhoc adjustment could not have been done by the Tribunal. The Tribunal took note of the arguments of the assessee that they function under limited risk because they are a wholly owned subsidiary of their AE and they are a captive service provider and whereas the comparable Companies has independent entities, the assessee being a captive service provider is a very relevant factor. After noting the factual position, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X
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