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TMI Blog2025 (3) TMI 1081X X X X Extracts X X X X X X X X Extracts X X X X ..... dissimilar comparable are excluded then the operating profit/sales margin works out to 13.98. Moreover in subsequent years the TPO has accepted commission as Arm's Length and has not made any addition vide order dated 29.01.2015. Accordingly, Ground of assessee's appeal is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... holding that the revenue has not been recognized as per accounting standard, contrary to the fact not disputed by the assessing officer, without giving an opportunity of being heard to the assessee. The addition as such is arbitrary and against the principles of natural justice and is untenable. 3.3 That the learned CIT(A) has erred in ignoring the orders of the CIT(A) for AY 2005-06 to AY 2008-09 in this regard and observations made therein as regards following of Accounting Standards by the assessee. 3.4 That the learned CIT(A) has erred in merely following the order passed in earlier years regarding addition in respect of advance received from customers under AMC contract, without appreciating that the observations made in the earlier year assessment orders and CIT(A)'s orders are factually erroneous. 4. That the learned CIT(A) has erred in upholding the disallowance of Security Deposit written off, amounting to Rs. 4,82,597 debited under the accounting head 'Advances written off in the books of account, without appreciating the facts of the case, nature of the expense, and without affording opportunity of being heard to the assessee. The order as such is vitiated ..... 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("TNMM") at entity level i.e. on aggregate profits of the assessee, to determine arm's length price of the subject transaction which is only a small fraction of the total revenue. 5.7 That, without prejudice to the other grounds, the learned CIT(A) has erred in not considering segmental profits of the assessee for the subject transaction, for the purpose of application of TNMM. 5.8 That, without prejudice to the other grounds, the learned CIT(A) has erred in upholding the computation of the operating profit margin of the assessee as 7.5% on sales instead of 11.94%, without providing any reasons therefor. 5.9 That, without prejudice to the other grounds, the learned CIT(A) has failed to appreciate that the revenue earned by the assessee from the subject transaction was pure profit margin, as the transaction did not require separate investment and cost, and as such, the relevant profit margin from the subject transaction was more than the profits earned by the comparable companies. 5.10 That, without prejudice to the other grounds, the learned CIT(A) has erred in not approving entity level comparison of profits of the assessee with the entities engaged in the business of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Enterprise (AE), during the assessment year with the most appropriate method for benchmarking. 9. Learned Authorized Representative for the assessee/appellant submitted regarding ground no.6 that this ground is consequential in nature therefore left open. 10. Learned Departmental Representative for the Department of Revenue submitted that learned CIT(A) in para no.4 has rightly dealt with the issue of advances received from customers under the contract entered into by the assessee. 10.1 Learned Departmental Representative for the Department of Revenue submitted that the assessee had failed to submit any documents regarding advances given to MTNL and BRPS by M/s. ECE as security deposit for availing benefit of section 37(1) of the Act filing of advances is necessary. 10.2 Learned Departmental Representative for the Department of Revenue submitted that learned CIT(A) had dealt with the issue of Transfer Pricing Adjustment properly. Reference to TP study was made. At the most, the matter may be referred to TPO/AO. 11. From examination of record in light of aforesaid rival contentions, it is crystal clear that the Ground No. 3pertains to "advance received from customers" under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the authorities below do not lay down correct position in law. The assessee would be entitled to deduction of the entire expenditure of Rs.2,72,25,000 and Rs. 55,00,000 respectively in the year in which the amount was actually paid. The appeals are allowed in the aforesaid terms with no orders as to costs." 12. Accordingly, Ground Nos.3, 3.1 & 3.2 of the assessee's appeal are allowed. 13. Ground No.4 regarding disallowance of Rs. 4,82,597/- security deposit written off, debited under the accounting head advances written off. The advances given to MTNL and BTPS by ECE as security deposit for obtaining tenders. In para no.6.2(e), it is mentioned that the appellant as requested M/s. ECE to provide documents in relation to the same for getting the deposit back however, no documents could be traced by ECE and MTNL/BTPS and could not realized and advances were written off. The assessee failed to submit documents in support of non realization for claiming benefit of Section 37(1) of the Act. The appellant assessee had no means to recover and were written off under the head. However, in view smallness of the amount vis-à-vis income of Rs. 14,77,79,575/- of the assessee, the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee, directed the TPO to treat the foreign exchange gain/loss as operating in nature in calculating the operating margin of the assessee as well as final comparable companies. Respectfully following the same, we set aside this issue to the file of TPO/AO to treat the foreign exchange gain/loss as operating in nature in calculating the operating margin of the assessee as well as final comparable companies. Accordingly, this ground stands allowed for statistical purposes in all the three years before us." 15.3 TPO had selected 7 following companies as comparables with dissimilar functions/assets/risk without confronting the assessee, which is gross in violation of principle of natural justice : 1. Aptico Limited. (AR at Pgs. 319-322 of TP Vol-II) Aptico provides micro enterprises development, skill development, entrepreneurship development, tourism development &research. (see page 319 of TP Vol-II). As the functions are entirely dis-similar & incomparable with the functions of the assessee this should be excluded as a comparable on this ground alone. This company was excluded as a comparable by Hon'ble ITAT from the list of comparables as functionally dissimilar in A.Y. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) (Para 8.3(c) at pg 73k of DPIB) 5. TSR Darashaw Lid (A.R Pgs. 502-530 of TP Vol-11) TSR Darashaw Ltd. is a broking and investment banking house and as 57.4% of its income is from the share registry services segment. This comparable is engaged in payroll process outsourcing. It is a leading Business Process Outsourcing (BPO) and rendering HR Services. Hence Ex-facie this cannot be taken as a proper comparable. 1) Tech Micro India(Ltd) vs DCIT [2015] 64 taxmann com462 (Del)(Trib) (Para 9 at pages 48-49 of DPB) ii) Hyundai Rotem Company Vs. ACIT [2016] 73taxman.com42 (Del-Trib) Para 10 at pg. 39 DPB iii) Kobelco Cranes India Ltd. vs ITO [2016] 70 saxmann.com) (Del- Trib)(Para 8.3 at pg 71-72 of DPB) iv) Addidas Technical Services (P.) Lad vs DCIT (2016) 69 taxmann.com401 (Delhi-Trib) Para 8.3(d) at pg. 73k of DPB) Conclusion: Once these dissimilar comparable are excluded then the Operating profit /Sales margin works out to 13.98 as per table below which is within the +-5% range with assessee. Company Name OP/OC Cyber Media Research Ltd 14.85 Quadrant Communications Ltd 13.11 Average 13.98 It is to be noted that in the su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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