TaxTMI 
TaxTMI 
2013 (11) TMI 1314
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.... During the previous year relevant to the assessment year under consideration, the assessee earned income, inter alia, from IT enabled services (ITES) amounting to Rs. 28,51,72,955 from CP Ships (UK) Limited. The Transactional Net Margin Method (TNMM) was considered by the assessee as the most appropriate method for benchmarking its international transactions. Operating profit to Total cost (OP/TC) was taken as Profit Level Indicator (PLI). The assessee showed margin of 15.19% in respect of such international transactions as against mean OP / TC of its chosen comparable cases at 15.46%. Some of the comparables selected by the assessee were rejected by the TPO. The TPO confronted the assessee with certain fresh comparable cases which are listed in his order. A final list of comparable cases was drawn by the TPO which is tabulated on pages 3 and 4 of his order. The arithmetical mean of such comparable cases, as per the table, was determined at 25.3% as against the assessee's OP/TC at 15.19%. This led to adjustment of Rs. 2,50,29,070. The Assessing Officer made such adjustment. However, the learned CIT(A) deleted the adjustment for the reasons cited in the impugned order. 3. At the o....
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....ch arm's length price is computed by considering the price from similar transactions between unrelated parties. Choice of correct transactions between unrelated parties as a yardstick or in other words, choosing correct comparable cases is a vastly disputed area in the realm of transfer pricing. Whereas the endeavour of the assessee is generally towards picking up such comparable cases which are close to the price recorded by it in respect of international transactions, the Transfer Pricing Officer embarks upon finding such comparable cases which give more cushion for making adjustments. The role of superior/appellate authorities assumes significance in making it sure that only the correctly comparable cases get selected for the purposes of benchmarking. As there is a vast data of the cases available in the public domain, the comparable cases are selected by finding out such cases as are close to the assessee in terms of the nature of transactions and other attending circumstances. This is done by applying certain filters. Such filters may be general as well as specific. General filters may encompass choosing such cases whose nature of work is broadly similar to that of the assesse....
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....n Maersk Global Service Center (India) (P.) Ltd. (supra) was a service provider rendering back office support service to its Associated Enterprises (AEs). In para 29 of this order, it has been recorded by the Tribunal that the activities undertaken by the assessee were essentially ITES, such as, data entry, transcription and data of shipping documents such as bill of lading etc. The instant assessee before us is also in the same line of business providing similar services as were rendered in the case of Maersk Global Service Center (India) (P.) Ltd. (supra). Further the A.Y. in both the cases is also similar, that is, 2005-2006. In that case also, the TPO introduced Cepha Imaging Private Limited as comparable. However, the Tribunal vide para 48 of its order observed that this company is "engaged in providing software development service as is evident from their annual report available on pages 52 onwards and 64 onwards of the paper book". We find that the finding recorded by the learned CIT(A) in the impugned order that Cepha Imaging Private Limited was mainly engaged in export of software tallies with that recorded by the Tribunal in the case of Maersk Global Service Center (India....
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....omparable. 5.3 After considering the rival submissions and perusing the relevant material on record, we find that the case of Vishal Information Technologies Limited has been discussed in the case of Maersk Global Service Center (India) (P.) Ltd. (supra) and it was noticed by the Tribunal from the annual accounts that it was outsourcing a considerable portion of its business. Accordingly this case was excluded from the list of comparables. This fact of outsourcing becomes evident when we consider the figures of expenses from the annual report of this company, which shows personnel cost at Rs. 19.70 lakh as against expenses under the head "Trading and operating expenses" being 'Data entry charges and vendor payments' at Rs. 12.90 crore. Our attention has not been drawn by the learned Departmental Representative towards any material from the Annual report of this company to indicate that the 'Data entry charges' pertained to the expenses incurred by the assessee on its own employees. Since the case of Vishal Information Technologies Limited has been considered as incomparable in the case of Maersk Global Service Center (India) (P.) Ltd. (supra) by recording a categorical finding tha....
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....any was following different financial year ending but the following different financial years could not be a reason to exclude this case. 7.2 The learned Departmental Representative contended that unless the financial year-end of a comparable case matches with that of the assessee, it cannot be considered as comparable because the figures of different financial year endings are distorted. He relied on an order passed by the Mumbai Bench of the Tribunal in the case of Sandstone Capital Advisors (P.) Ltd. v. ACIT in ITA No.6315/Mum/ 2012. Vide its order dated 06.02.2013, the Tribunal, after considering the prescription of Rule 10B(4) and an another case of Pune Bench of the Tribunal in Honeywell Automation India Ltd. v. Dy. CIT [IT Appeal No. 4 (PN) of 2008, dated 11-2-2009] has held that it is mandatory for the purposes of comparing the data of an uncontrolled transaction with an international transaction that the same must relate to the financial year ending similar to that of the assessee. The ld. DR contended that since the case of CMC Limited has a different financial year ending vis-a-vis that of the assessee, the same ought to have been excluded. No contrary precedent was bro....