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TMI Blog2018 (6) TMI 1822X X X X Extracts X X X X X X X X Extracts X X X X ..... party. Accordingly we direct the AO/TPO to exclude the reimbursements and accordingly compute RPT transactions. Accordingly we restore this comparable to the file of AO/TPO for considering it afresh. Assessee has opted for Advance Pricing Agreement (APA) for AY 2010-11, wherein the assessee has accepted determination of higher margins - We notice that Rule 10MA provides for the methodologies of Roll back of the APA and clause (iv) of sub rule (2) of Rule 10MA states that there should be a request from the assessee for roll back of APA. In the instant case, admittedly, there is no request from the assessee for roll back. Hence we do not agree with the submissions made by the Ld D.R. Accordingly we restore the issue of determination of ALP to the file of AO/TPO by considering the comparables approved by us in the preceding paragraphs by adopting single year data in terms of Rule 10B(4) of IT Rules. In the result, the appeal of the assessee is treated as allowed and the appeal of the revenue is dismissed. - I.T.A. No. 1682/Mum/2014, I.T.A. No. 1738/Mum/2014 - - - Dated:- 8-6-2018 - S/Shri B.R. Baskaran (AM) Sandeep Gosain (JM) For Assessee by Shri Porus Kaka Shr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TPO noticed that, during the year under consideration also, the assessee was rendering vital and knowledge intensive services in the form of identifying and evaluating potential investments, providing advice regarding the same, giving recommendations with respect to such investments, conducting continual analysis in respect of these investments, providing support service for secondment of directors to assist the management of companies in which strategic investment has been made. Accordingly, the learned TPO held that the nature of services provided by the assessee should be taken as Knowledge incentive in nature and hence in the nature of KPO. 4. The TPO noticed from the T.P study conducted by the assessee, more particularly from Accept and Reject matrix that the following comparables have been omitted by the assessee for the reasons stated against each of them:- (a) Vishal Information Technology Ltd (Now known as Coral Hubs Ltd) the average inventory to total assets ratio is greater than 5% ( i.e.,14.78%). (b) Cosmic Global Ltd It provides BOP and ITES services. Hence it operates in different industry and has difference in functional profiles. (c) E Clerx Servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e contention of the assessee and accordingly rejected TP study done by the assessee with following observations:- 7.4.2 The following pertinent defects have been found in the TP analysis carried on by the taxpayer. a) As per Rule 10B(4), it is mandatory to use the current financial year i.e. the financial year in which the international transactions took place (FY 2008-09). But the taxpayer did not consider current year data exclusively in all of the comparable companies. b) The taxpayer used earlier two years data without justifying how such earlier year data had an influence on pricing for the taxpayer or the comparable companies. c) The taxpayer has selected companies which are functionally not comparable, comparables which are consistently loss making companies, etc. d) As discussed above, some of the taxpayer's comparables do not stand scrutiny of FAR analysis, e) The taxpayer selected companies with predominant domestic operations though the taxpayer is mainly an export oriented IT enabled service provider. f) The taxpayer selected companies with declining revenues though no reasonable adjustments can be made to account for under utilization of assets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has challenged the decision of the tax authorities to treat the assessee as KPO company and the same appears to have been accepted by the Tribunal, though it has not been spelt directly. Accordingly we set aside the order passed by the AO on this issue and hold that the assessee, being an investment advisory company, cannot be taken as a KPO company. 12. The Ld A.R argued that the TPO did not find defects in the TP study documents and hence rejection of the same should not be sustained. As noticed earlier, the TPO has proceeded to determine the ALP of the transactions with AE by treating the assessee as KPO and further he has also pointed out the defects in the T.P documentation of the assessee. Hence, it cannot be said that the rejection of the TP study of the assessee is without any basis. Further we notice that the TPO has selected the comparables from the TP study of the assessee only. In any case, we have held that the assessee cannot be treated as KPO company and hence this contention of the assessee would lose its significance. 13. The Ld DRP and TPO has observed that the assessee has taken multiple year data, while the provisions of Rule 10B(4) mandates us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the functional profile of this company is different and further its activities are carried out mostly through outsourcing. 17. We heard Ld DR on this issue and perused the record. We notice that the Tribunal has extracted following observations made by Ld DRP in AY 2008-09:- 6.3 In respect of Vishal Information Technologies Ltd., now known as Coral Hubs Ltd, we find that a major part of the business of the company comprises outsourcing of services. We are therefore, in agreement with the assessee that this company is functionally different and should be deleted from the list of comparables. However, during the year under consideration, the Ld DRP has included this company as comparable, mainly on the ground that the activity of outsourcing cannot be a ground for rejection of the same. In this regard, the Ld DRP has placed reliance on the decision rendered by Delhi bench of ITAT in the case of Agilent Technologies. 18. We notice that the TPO has included Coral Hubs Ltd on the ground that it is a KPO company, since he has considered the assessee company as KPO company. The contention of the assessee is that there is no functional similarity between the assessee-co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computed the RPT by including the reimbursements. He submitted that the reimbursement of expenses should not be considered for working out RPT and in support of this proposition, he placed reliance on the decision rendered by the co-ordinate bench in the case of M/s Lehman Brothers Advisers P Ltd vs. DCIT (ITA No.595/Mum/2014 dated 25.10.2017) and also the decision rendered in the case of M/s Goldstar Jewellery Design P Ltd (ITA No.7317/Mum/2012 dated 23.04.2013). 23. We heard Ld DR on this issue and perused the record. The co-ordinate bench in the case of Goldstar Jewellery Design P Ltd (supra) has observed that the term related party transaction cannot be considered in its generic sense. It will encompass only such transactions between the related parties which directly affect the overall profitability in one way or the other . The Ld A.R submitted that the reimbursements do not affect profitability and hence the same has to be excluded. We find merit in the said submissions. The reimbursement of expenses does not result in any profitability, i.e., it is mere compensation for the expenses incurred by one party on behalf of another party. Accordingly we direct the AO/TPO to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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