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TMI Blog2021 (3) TMI 1411X X X X Extracts X X X X X X X X Extracts X X X X ..... that as it may, in ground 1, the assessee has challenged the addition of Rs.4,48,60,208/- on account of transfer pricing adjustment. 4. Briefly the facts are, the assessee is a resident company. As stated by the transfer pricing officer (TPO, hereinafter), the assessee is basically engaged in providing software consultancy and design services through its overseas associated enterprises (AEs). While providing such services to the AEs, assessee had earned revenue of Rs.19,11,81,023/-.To benchmark the aforesaid transaction, assessee selected transactional net margin method (TNMM) as the most appropriate method with operating profit/operating cost (OP/OC) as profit level indicator (PLI). After considering itself as the tested party, assessee proceeded to select comparables by applying certain filters. In such search and selection process, the assessee selected certain comparables having average PLI of 14.33%. The PLI of the assessee having been shown at 27.42%, the price charged for transaction with AE was claimed to be at arm's length. Though, the TPO accepted TNMM as the most appropriate method with PLI of OP/OC; however, he did not accept the search and selection process of compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... report of the company, wherein it has shown research and development (R&D) expenses. Thus, he submitted, the company cannot be a comparable to the assessee. In support of such contention, he relied upon the following decisions:- i. UCB India Pvt Ltd vs Addl.CIT (ITA No.7691/Mum/2012) dt 29.7.2016 ii M/s 3DPLM Software Solutions Ltd vs Dy.CIT I.T.(TP) A. No.1303/Bang/2012 dt. 28-11-2013 iii. Dialogic Networks (India) Pvt Ltd vs the ACIT ITA No.7280/Mum/2012 dt 27-07-2018 7. Drawing our attention to the annual report of the company, Shri A. Mohan, the learned Departmental Representative submitted, the company is engaged in clinical research and manufacture of by-products and other products, which are akin to the work of water treatment and sewage disposal undertaken by the assessee. He submitted, since this company is comparable to the assessee, it cannot be rejected. He submitted, the decision rendered in case of UCB India Pvt Ltd vs Addl. CIT (supra) being factually distinguishable, will not apply. 8. We have considered rival submissions and perused materials on record. Admittedly, the TPO, in his own words has stated that the assessee is providing software development ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave considered rival submissions and perused materials on record. As we find from the annual report of this company, it appears that it provided high-end ITES to its AEs and segmental information regarding various services provided are not available in public domain. Considering the fact that the aforesaid company is engaged in providing high-end ITES or knowledge process outsourcing (KPO) services, it has been rejected as a comparable to a software development service provider in the above referred decisions. Since, the aforesaid decisions cited before us pertain to the very same assessment year and there is no major change in the factual position, following these decisions, we reject this comparable. III. ACROPATEL TECHNOLOGIES LIMITED 12. Objecting to selection of this comparable, the learned Senior Counsel for the assessee submitted, this company does not pass certain quantitative filters applied by the TPO himself. He submitted, the total revenue earned from information technology segment is less than 75%, employee cost as a percentage of total expenses is less than 25% and the on-site development expenses as a percentage of total expenses is more than 60%. To substantiate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computing the margin of the company. He submitted, the rental income earned by this company being non-operating revenue should be excluded while computing the margin. Further, he submitted, another two items, being excess provision written back and miscellaneous receipts, have to be excluded while computing the margin of the company. He submitted, if the aforesaid three items are excluded, the margin of the company would be 15.00% as against 42.30% computed by the TPO. Further, he submitted, in case of Dialogic Networks (India) Pvt Ltd vs the ACIT (supra), the Tribunal accepting assessee's claim had allowed the aforesaid adjustments to be made while computing the margin of the company. 17. The learned Departmental Representative submitted, the assessee did not raise this issue either before the TPO or before the learned DRP. Therefore, he cannot be allowed to raise this issue at this stage. Further, he submitted, as long as cases are comparable and pass the filters, further adjustment, unless it abnormally affects the margin, cannot be allowed. He submitted, when TNMM would apply, broad functional comparability is only required to be seen. 18. We have considered rival submissions ..... X X X X Extracts X X X X X X X X Extracts X X X X
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