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TMI Blog2021 (9) TMI 849X X X X Extracts X X X X X X X X Extracts X X X X ..... ial results of the company for relevant assessment year, the company cannot be excluded from the list of comparables, more particularly when the assessee itself had included said company in the list of final comparables in its TP documentation. Therefore, on this count also, exclusion of Acropetal Technologies Ltd., is rejected. Bloom Energy India Pvt. Ltd - No merit in arguments of the assessee to exclude Acropetal Technologies Ltd., from the list of comparables and hence, we are inclined to uphold the findings of ld. DRP and reject ground taken by the assessee. Onward Technologies Ltd.- In light of reasons given by the ld. DRP to exclude Onward Technologies Ltd., from the list of comparables and find that one side, the ld. DRP is accepting the fact that the company is engaged in engineering design services and IT consulting, but on the other side, rejected objection filed by the assessee only for the reason that segmental data is not available in the financial years. Therefore, once the DRP having accepted fact that functions performed by Onward Technologies Ltd., is similar to functions performed by the assessee, it ought not to have rejected inclusion of said company, mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . DRP failed to provide adequate opportunity to the Appellant to verify and object the information gathered under section 133(6) of the Income-tax Act, 1961. 5. The Ld. DRP, Ld. AO and Ld. TPO erred in introducing additional quantitative filters without rejecting the TP documentation of the Appellant as required under section 92C(3) of the Income-tax Act, 1961. 6. The Ld. DRP, Ld. AO and Ld. TPO have erroneously applied employee cost filter, despite the Appellant highlighting various practical difficulties in adoption of this filter. The Ld. DRP, Ld. AO and Ld. TPO erred in not following judicial precedents relied upon by the Appellant in relation to application of employee cost filter. 7. The Ld. DRP, Ld. AO and Ld. TPO erred in introducing asset turnover filter to the economic analysis, without appreciating that the Appellant is in service industry (which is not capital intensive). The inclusion of the asset turnover filter is arbitrary as the Ld. DRP, Ld. AO and Ld. TPO have not provided any threshold for application of the said filter. 8. The Ld. DRP, Ld. AO and Ld. TPO erred in law and facts by rejecting the additional companies selected by the Appellant, b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... traordinary year of operation. The TPO, however, was not convinced with explanation furnished by the assessee and according to him, no concrete evidence has been filed to prove financial abnormalities to exclude Acropetal Technologies Ltd., from the list of comparables. As regards, employee cost filter, the TPO noted that the assessee, being in the service sector and employee being the prime asset, 50% filter on employee cost is considered to be reasonable. The ld. TPO has also rejected additional comparables selected by the assessee on the ground that all 3 comparable companies suggested by the assessee are functionally different from the assessee company and hence, cannot be included in the list of comparables. Thus, the TPO has recomputed operating margin of the assessee by retaining 2 comparables with arithmetic mean of 28.6% and thus, compared with operating margin of the assessee which is at 20.7% and made upward adjustment of ₹ 15,02,08,973/-. 5. In pursuant to TP adjustment, as suggested by the ld. TPO, the AO has passed draft assessment order u/s. 143(3) r.w.s 144C(1) of the Act on 15.12.2016 and proposed TP adjustment as suggested by the ld. TPO. The assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The proviso to said Rule makes it an exception in allowing the use of data for preceding two years, if and only if, it is proved that such data reveals facts, which could have an influence on the determination of transfer price. Since, the assessee has failed to demonstrate on the basis of contemporaneous documentation at the time of fixing and determining transfer price that multiple year data have an influence, the ld. TPO was right in rejecting multiple year data. The ld. DRP has also rejected objections filed by the assessee regarding application of employee cost filter by holding that in the case of an Engineering Design Service Company, employees are the main asset of the company and directly reflect the nature of business undertaken by the company. Very low expenditure on employee cost is an indication that the company is either into further outsourcing of the work or is a software trading company. Therefore, opined that since the employee cost of the assessee is 67% of the total revenue, the decision of the TPO to apply filter at 50% is considered justified. The ld. DRP has also rejected additional comparable companies suggested by the assessee on the ground that all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t directions may be given to the TPO to include Onward Technologies Ltd., as a comparable company. 8. The ld. DR on the other hand strongly supporting order of the DRP/TPO, submitted that when the assessee itself had selected Acropetal Technologies Ltd., as a comparable company by considering the financials for the relevant assessment year and also FAR analysis, there is no reason for the assessee to seek exclusion of said company only on the basis of certain newspaper reports, which suggest initiation of regulatory proceedings by SEBI, without bringing on record any evidences to prove that such proceedings initiated by regulatory bodies is having bearing on the financials of the company for the relevant period. The ld. DR further submitted that as regards inclusion of Onward Technologies Ltd., as a comparable company, the ld. DRP has very categorically held that as per its Director's report, the company is involved in major lines of operations which is different from engineering design services provided by the assessee and hence, it is not a good comparable to the assessee company. Therefore, there is no reason for the assessee to seek inclusion of Onward Technologies Ltd., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rofit is not a good ground for exclusion of comparable, when all other functions are similar to the functions performed by an assessee. Therefore on that ground, the arguments of the assessee for exclusion of Acropetal Technologies Ltd., is rejected. As regards allegation of fraud against the company in light of notice issued by SEBI, we find that the notice was issued in financial year 2016-17, whereas the assessment year in question pertains to 2012-13. The assessee has not filed any evidences to demonstrate the disciplinary proceedings initiated by SEBI is having any bearing on financial results of assessment year 2012-13, but the assessee is supporting its arguments only on the basis of certain newspaper reports. Although, the assessee has referred the investigation report of SEBI, but on perusal of report issued by SEBI, we could not find any adverse comments on financial results for the relevant assessment year except violation of certain regulatory guidelines in respect of trading of shares in stock market. Therefore, we are of the considered view that unless the assessee demonstrate with evidences that disciplinary proceedings initiated by certain agencies are having bearin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it was engaged in product engineering services, which is almost similar to functions performed by the assessee and hence, there is no reason for the AO to reject inclusion of additional comparables. We have gone through the arguments of the ld. AR for the assessee in light of reasons given by the ld. DRP to exclude Onward Technologies Ltd., from the list of comparables and find that one side, the ld. DRP is accepting the fact that the company is engaged in engineering design services and IT consulting, but on the other side, rejected objection filed by the assessee only for the reason that segmental data is not available in the financial years. Therefore, once the DRP having accepted fact that functions performed by Onward Technologies Ltd., is similar to functions performed by the assessee, it ought not to have rejected inclusion of said company, merely for non-availability of segmental data. Therefore, we are of the considered view that the ld. TPO needs to re-examine the claim of the assessee for inclusion of Onward Technologies Ltd., in the list of comparables by analyzing FAR studies of both companies. Hence, we set aside the issue to the file of the ld. TPO and direct him ..... X X X X Extracts X X X X X X X X Extracts X X X X
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