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TMI Blog2022 (8) TMI 1283X X X X Extracts X X X X X X X X Extracts X X X X ..... s a turnover of Rs.20.06 crore, companies reporting turnover above a threshold are not considered comparable. Accordingly, by following the above orders of the Tribunal, we direct the AO / TPO to apply the appropriate upper turnover filter and consider exclusion of the above seven companies having turnover in excess of Rs.200 crore. Exclusion of Infobeans Technologies Limited on the ground of functional comparability - Tribunal held the finding of DRP has not been countered by the assessee in the said case. However, the company s response to the notice u/s 133(6) of the I.T.Act is contrary to the functions set out in the audited financial statements (enclosed as Annexure-A), and therefore, the same cannot be relied upon. Moreover, the website of the company shows tht the company is engaged in diverse service, which are not similar to functions of the assessee in the instant case. Since the learned AR has been able to clearly established that Infobean Technologies Limited is not functionally comparable to that of the assessee, we follow the orders of the ITAT referred and direct the AO / TPO to exclude Infobean Technologies Limited from comparable list. It is ordered accordingly. Wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP s directions, the TP adjustment was marginally reduced to Rs.2,27,47,410. Consequent to the DRP s directions, final assessment order was passed on 29.03.2021. 4. Aggrieved by the final assessment order, the assessee has filed the present appeal before the Tribunal. Several grounds are raised by the assessee. However, during the course of hearing, the learned AR had only pressed grounds 2.4, 2.5, 2.7, 2.8 and 2.13. The above grounds read as follows:- 2.4 On the facts and in the circumstances of the case and in law, the learned AO / NeAC and the learned TPO erred in arbitrarily accepting companies without appreciating huge differences in the turnover and size of the Appellant and alleged comparables and the Hon ble DRP further erred in upholding / confirming the action of the learned AO / TPO. 2.5 On the facts and in the circumstances of the case and in law, the learned AO/NeAC and the learned TPO erred in accepting companies which are functionally non-comparable, having significant onsite operations, extraordinary events and based on application of stringent export turnover filter, related party transactions filter etc. The Hon ble DRP further erred in upholding / conforming the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Shortfall being adjustment 2,27,47,410 7. In ground 2.4, the assessee is seeking application of upper turnover filter and thereby exclusion of seven companies. According to the learned AR, since a lower turnover filter has been applied, the TPO / DRP ought to have applied a higher turnover filter to exclude the following companies:- (i) Nihilent Limited (ii) Larsen Toubro Infotech Limited (iii) Persistent Systems Limited (iv) Aspire Systems (India) Private Limited (v) Thirdware Solution Limited (vi) Infosys Limited (vii) Cybage Software Private Limited. 8. The learned DRP has rejected the objections of the assessee by observing that turnover does not have an influence on the margins of the company as far as the service sector is concerned. The learned AR has placed reliance upon the ruling of the Bangalore Bench of the Tribunal in the case of BORQS Software Solutions Private Limited v. ITO in IT(TP)A No.310/Bang/2021 (Bangalore) (A.Y. 2016-2017) (order dated 25.10.2021) and ANSR Global Corporation Private Limited v. ACIT in IT(TP)A No.225/Bang/2021 (AY 2016-2017) (order dated 19.04.2022). 9. The learned Departmental Representative supported the orders of the Income Tax Authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this order as Annexure-A) (placed at page 1130 of the paper book submitted by the assessee). The above services rendered by the company are vastly different from the services rendered by routine software development companies like that the assessee in the instant case. Further, the segmental details for these diverse services are not available and therefore the company cannot be selected as a comparable. The other reason for not considering Infobean Technologies Limited as comparable are as under:- (i) Significant Intangible assets: During the FYs 2013-2015 to 2015-2016, the company owned intangible assets representing around 7% of the total fixed assets held by the company. (ii) Export of goods: The annual report of the company at Note 33 under the head earnings in foreign currency shows export of goods calculated on F.O.B. basis. In the absence of segmental details, the company cannot be selected as a comparable. (iii) Expenses in foreign currency: It also incurred significant expenditure in foreign currency, in the nature of onsite activities representing around 1.5% of the total sales. (iv) Abnormal increase in revenue and fluctuation in margin: The revenue increased from Rs.35 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... software engineering services in different fields and segmental details were unavailable) (vii) Kony IT Services Private Limited v. DCIT (Order dated 20.11.2019 passed by the Hyderabad Bench of this Hon'ble Tribunal in ITA No. 2304/Hyd/2018 for AY 2014-15)- at para (iii) on page 15 (on account of functional dissimilarity as it has earning from export of goods and has deposited MODVAT and sales tax). (viii) Avaya India Pvt. Ltd. v. ACIT (Order dated 24.09.2019 passed by the Delhi Bench of this Hon'ble Tribunal in ITA No. 7290/0el/2018 for the A Y 2014-15) - at para 7.4 (on account of functional dissimilarity as the company has earnings from export of goods). (ix) Pubmatic India Pvt. Ltd. v. ACIT (Order dated 09.03.2018 passed by the Pune Bench of this Hon'ble Tribunal in ITA No. 655/Pun/2017 for the AY2012-13)- at para 18 (on account of functional dissimilarity as the company has earnings from export of goods). 15. In the case law relied on by the learned DR, namely, BORQS Software Solutions Private Limited v. ACIT (supra), the Tribunal merely affirmed the findings of the DRP, which in turn relied on the reply filed by the company in response to notice u/s 133(6) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection of TP study maintained by the assessee and not commented on functionality. It is to be noted that the DRP has not adjudicated on functional comparability and simply remarked that the same does not appear in TPO s search matrix. In view of the principles of natural justice, we deem it appropriate to remand the matter back to the file of the TPO to specifically adjudicate on the comparability given the information / documentation and the case laws relied upon by the assessee before us. It is ordered accordingly. 19. Similarly, the learned AR has urged the inclusion of Evoke Technologies Private Limited in the list of comparable companies. The TPO has rejected it citing unreliable financial statements. The DRP has not adjudicated its functional compatibility by simply stating that it is not appearing in TPO search matrix. The learned AR has referred to page 4031 of the paper book to claim that the company is engaged in providing IT services and it derives revenue from providing software development services. Further, the assessee has placed reliance on the ruling in the case of Continental Automotive Components (India) Private Limited v. ACIT (supra). Given the above and in vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ults. 16. The CIT (A) also placed reliance on a decision of Chennai ITAT in the case of Mobis India Ltd. v. Dy. CIT [2013] 38 taxmann.com 231/[2014] 61 SOT 40. That decision was based on the factual aspect that the Assessee was not able to demonstrate how working capital adjustment was arrived at by the Assessee. Therefore nothing turns on the decision relied upon by the CIT (A) in the impugned order. In the matter of determination of Arm's Length Price, it cannot be said that the burden is on the Assessee or the Department to show what is the Arm's Length Price. The data available with the Assessee and the Department would be the starting point and depending on the facts and circumstances of a case further details can be called for. As far as the Assessee is concerned, the facts and figures with regard to his business has to be furnished. Regarding comparable companies, one has to fall back upon only on the information available in the public domain. If that information is insufficient, it is beyond the power of the Assessee to produce the correct information about the comparable companies. The Revenue has on the other hand powers to compel production of the required detai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther add that in terms of Rule 10B(1)(e) (iii) of the Rules, the net profit margin arising in comparable uncontrolled transactions should be adjusted to take into account the differences, if any, between the international transaction and the comparable uncontrolled transactions which could materially affect the amount of net profit margin in the open market. It is not the case of the CIT (A) that differences in working capital requirements of the international transaction and the uncontrolled comparable transactions is not a difference which will materially affect the amount of net profit margin in the open market. If for reasons given by CIT (A) working capital adjustment cannot be allowed to the profit margins, then the comparable uncontrolled transactions chosen for the purpose of comparison will have to be treated as not comparable in terms of Rule 10B(3) of the Rules, which provides as follows: (3) An uncontrolled transaction shall be comparable to an international transaction if- (i) none of the differences, if any, between the transactions being compared, or between the enterprises entering into such transactions are likely to materially affect the price or cost charged to p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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