TaxTMI 
TaxTMI 
2017 (3) TMI 267
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....g the total taxable income at Rs. 5,47,61,076 as against the returned income of Rs. 11,61,076 and making adjustment of Rs. 5,36,00,000 in respect of the international transactions of the appellant based on the directions issued by the DRP. 2. GROUND NO. 2: The Learned Additional Commissioner of Income-tax [TP-II(2)] ('the learned TPO') has erred in law and on facts and in circumstances of the case in pointing out various defects in the Transfer Pricing Study ('TP Study') of the appellant without appreciating the correct facts of the case. Further, DRP has also erred in rejecting the objection of the Appellant. The DRP overlooked the fact that the Appellant had not used earlier years' data and misdirected itself in erroneously alleging that the Appellant had used earlier years' data. 3. GROUND NO. 3: The Ld. AO/TPO/DRP ought to have accepted the operating profit margin of the Appellant at 15% and the operating profit margin of the comparable cases at 5.04% as worked out by the Appellant as per TP Study. 4. GROUND NO. 4: The Ld. AO/TPO/DRP erred in holding that the data which was not available as on the due date of filing return of income cou....
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....ent while computing average operating profit margin of the comparables. 9.2 The learned AO/TPO/DRP have acted contrary to the record and erred in alleging that the Appellant had not demonstrated that working capital adjustment was essential in the facts of its case. 10. GROUND NO. 10: The learned AO/TPO/DRP have erred in law and on facts and in circumstances of the case in making upward adjustment exceeding the difference between total revenue earned by the AE from independent third party clients and revenue booked by the appellant from AE. 11. GROUND NO. 11: The learned AO/TPO/DRP have erred in law and on facts and in circumstances of the case in making the upward adjustment without considering inter alia the facts that during the year under consideration, the AE has incurred substantial operating loss and the assessee is STPI unit with 100% tax exemption and as such, there is no incentive to shift profit outside India. 12. GROUND NO. 12: The learned AO has erred in law and on facts and in circumstances of the case in making the upward adjustment of Rs. 5,36,00,000 in his final computation instead of Rs. 5,35,52,000 as per the body of his assessment order. ....
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....e client) etc. In other words, the assessee company can be classified as mainly engaged in providing 'Information Technology Enabled Services' (ITES) to its associated enterprises. As per the agreement with the AE the remuneration for providing ITES to AE is Cost plus 15% mark up. To benchmark the international transaction of ITES with AE as well as margin of 15%, the assessee selected TNMM as the most appropriate method and the PLI was based on operating profit /operating cost. The working was given in the following manner: Particulars Amount (Rs. in lac) Operating Revenue (A) 3,324.40 Operating Cost (B) 2,890.78 Operating Profit (C=B-A) 433.62 Net Cost Plus % (C/B *100) 15.00% In its TP Study Report, the assessee had selected following five comparables: Name of company OP/Cost % i. Aditya Birla Mincas Worldwide Limited 21.43 ii. Allsec Technoligies Limited -16.44 iii. Sundaram Business Services Limited 2.54 iv. R Systems International Limited 16.91 v. Cross domain Solutions Private Limited 26.92 Arithmetic Mean 10.27 After claiming working cap....
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....g of operating profit margin of Acropetal Technologies Ltd. Accordingly, after the direction of the DRP the adjustment was reduced to Rs. 5,35,52,000/- against which both the parties are in appeals before us. 7. We will first take up the issue pertaining to treatment of Forex loss and whether any adjustment on account of Forex loss can be made vis-a-vis the comparables. This issue has been raised by the assessee in ground no. 5.1 to 5.3. As stated earlier, the assessee has been set up as a STPI unit which is providing ITE services to its AE and is captive service provider. Before us the Ld. Counsel for the assessee, Mr. Rajan Vora submitted that the assessee had entered into a 'Service Agreement' dated 30.06.2006 for rendering back office local support services to its AE and for the year under consideration the assessee had received advance from its AE for meeting its operating cost requirement. During the year under consideration, the assessee had suffered Forex loss of Rs. 3.41 crores in the following manner: Particulars: Amount (in Rs.) Conversion of USD from EFC A/c to INR A/c: 62,80,115 Intercompany Receivables/Payables: 39,48,667 Cancellation of forwar....
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....87% in the preceding three financial years. He also pointed out to various factors nationally and internationally which had affected the sharp decline of Indian rupee vis-à-vis the US dollars during the FY 2008-09, which was so abnormal that Reserve Bank of India had to step in for sale of US $ 20.6 billion in foreign exchange market. The assessee had entered into majority of forward contracts during the FY 2007-08 when the value of INR was appreciating. However, the trend in exchange rate of INR vs. US $ completely turnaround in the FY 2008- 09 when the value of INR depreciated sharply particularly post September, 2008. In the notes to the accounts the assessee has highlighted its accounting policy in the past which was that, the assessee recognized marked to marked loss and gains if any, were not recognized till settlement. There was change in said accounting policy pursuant to the ICAI announcement on 29.03.2008 which was adopted by the assessee during the year under consideration. In the preceding year the accounting policy followed as per ICAI guideline was as such that profit or loss arising on settlement of forward contracts was recognized as income or expenses for th....
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....rking. In support of his contention that foreign currency fluctuation can be taken into account for transfer pricing adjustment both for comparable companies as well as the tested parties, he relied on the following two judicial precedence of Delhi ITAT: (i) Schneider Electric India Pvt. Ltd. Vs. DCIT (ITA No. 937/DEL/2014) dated 29 September 2016:- wherein the Hon'ble Delhi Tribunal has held that foreign currency fluctuations need to be taken into account for TP adjustment both for comparable companies as well as tested party. The Delhi Tribunal also observed that effect of adverse foreign exchange movement should be considered determining the arms' length price. (ii) Honda Trading Corp. India Pvt. Ltd. Vs. ACIT (ITA No. 5297/DEL/2011) dated 8 March 2013):- wherein the Hon'ble Delhi Tribunal has held that foreign exchange fluctuation loss on account of abnormal fluctuation in exchange rates should be treated as non-operating in nature. Accordingly, the Delhi Tribunal deleted the TP adjustment after considering foreign exchange fluctuation loss as non-operating in nature. Mr. Vora thus concluded that; firstly, either the Forex loss upto 2.7% of the assessee's c....
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.....com 381 (Delhi ITAT); e) Sumit Diamond (India) Pvt. Ltd. -32 taxmann.com 394 (Mumbai Tribunal); f) Techbooks International Pvt. Ltd.- ITA No. 722/DEL/2014 dt. 28/04/2014; g) Mindteck (India) Ltd. - IT(TP)A No. 70/Bang/2014 dt. 21/8/2017; h) Amba Research India (P) Ltd - (2015) 58 taxmann.com 363 (Bang. ITAT); i) e4e Business Solutions India (P) Ltd - 67 taxmann.com 68 (Bang. ITAT). In the case of Rushab Diamonds, (supra) she pointed out that, the issue whether or not hedging profits are non-operating in nature was specifically considered and the Tribunal held that hedging profits are in the nature of operating income only. 11. On the issue whether PLI of the assessee/tested party can be adjusted so as to increase the profit earned from the international transaction by excluding any part of the operating cost is abnormal or not, she submitted that it is not permissible to make any comparable adjustment in the PLI of the tested party and adjustment if required to be made, can be only made in the case of comparables. After referring to the provisions contained in sub-clause (iii) of Rule 10B (1)(e), she submitted that the said clause provides that the net profit ....
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....er the foreign exchange gains and losses are of a trading nature (e.g. exchange gain or loss on a trade receivable or payable) and whether or not the tested party is responsible for them. Second, any hedging of the foreign currency exposure on the underlying trade receivable or payable also needs to be considered and treated in the same way in determining the net profit. In effect, if a transactional net margin is applied to a transaction in which the foreign exchange risk is borne by the tested party, foreign exchange gains or losses should be consistently accounted for (either in the calculation of the net profit indicator or separately)". Thus, she submitted that gain or loss on forward contract entered into for hedging of trade receivable or payable has to be given the same treatment, i.e., which is given to the loss or gain or trade receivable or payable. The reason being, the purpose of hedging is to compensate the loss or gain which is likely to arise on the realization of receivable or payable. If foreign exchange is likely to be received on realization of debtor at a future date, the hedging is done to sell foreign currency at the future date and if in the future date w....
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....ange loss, i.e., their sale proceeds should be realizable in foreign currency. Once this comparability factor is established to be similar, the transactions become comparable on account of foreign exchange risk. It is therefore, she submitted that, once all the comparables that are considered, invoice in foreign currency and recovery of the sale proceeds in foreign currency, the risk assumed by the assessee and the comparables have to be established to be similar. Having so established, there is no further requirement to ensure that actual loss or gain earned by the comparable should be matching with the actual loss or gain earned by the assessee. Therefore, she submitted that, once the comparables are also providing services and earning their receipts in foreign currency then there is no difference between the international transaction and the uncontrolled transaction that warrants an adjustment in terms of sub-rule (3). Further, once all the comparables are considered for the purpose of determining the ALP, then they also bear the same foreign exchange risk on account of fluctuation in the exchange rate, hence there would be no difference between the international transaction and....
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....ugust, 2014, wherein the Hon'ble Tribunal has distinguished the Forex loss between capital and revenue in nature and has categorically held that only the Forex gains arising on account of rendering of software development services is to be considering for the purpose of computing operating margin of the Assessee. He submitted that in the assessee's case, the loss has arisen on account of cancellation of forward exchange contracts on account of abnormal variation in Forex rates. The assessee has merely contested that suitable adjustment need to be granted for the Forex loss to the extent it is extraordinary or abnormal. Thus, the judicial precedents relied upon by Ld. CIT DR are distinguishable on facts and merits. He submitted, such a huge loss was a peculiar phenomenon for the year under consideration in the assessee's case, because such abnormal event and abnormal loss has neither arisen to the assessee in the past or in subsequent years nor in case of comparable companies. Thus, it was submitted by him that forex loss though arising in the normal course of business is a non-recurring and extraordinary item qua the year under consideration and qua the comparables. Hence, the ....
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.... from the profit/loss of the underlined transaction, he submitted that in the case of the assessee there has been a peculiar feature this year which has been amply demonstrated that the cancellation of forward contracts was extraordinary and peculiar to the facts of the assessee's case. On the issue of whether the PLI of the tested party (assessee) can be adjusted so as to increase the profit earned from the international transaction by excluding any part of the operating cost as normal, ld. counsel submitted that in the case of the assessee, forward contract was entered to minimize the risk on account of exchange rate fluctuation, however, the exchange rate became so volatile that assessee had to cancel the same and booked an abnormal/extraordinary exchange loss. He also made distinction of decision of Delhi ITAT in the case of Honda Motor Cycles & Scooters India Pvt. Ltd., (supra) and JCB India Ltd., (supra) by submitting that they are distinguishable on facts. In the case of Honda Motor Cycles & Scooters India Pvt. Ltd., he pointed out that while computing the operating margin, the assessee had reduced the operating cost incurred during the period of strike and on the basis of a....
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....ets 0.14 Finance Expenses 345.86 Total Non-operating Expenses 99.36 Net Profit before Tax (OP/OC) 15.00% From the above calculation, the assessee has excluded foreign exchange loss amounting to Rs. 3.41 crores from its operating cost base and accordingly, the profit margin of 15% has been shown. On the other hand, the TPO has treated the Forex loss as an operating cost and thereby re-casted the operating margin at 2.83%. The breakup of foreign exchange loss of Rs. 3.41 crores is as under:- Particulars: Amount (in Rs.) Conversion of USD from EFC A/c to INR A/c: 62,80,115 Intercompany Receivables/Payables: 39,48,667 Cancellation of forward contracts: 2,22,52,796 Reinstatement of balances: 10,89,549 Open Contract: 6,96,633 Others: (1,22,986) Total 3,41,44,774 The assessee has adopted TNMM as the most appropriate method to determine the ALP of its international transaction of provision of legal process outsourcing services to the AE. 19. The relevant methodology of TNMM as contained in Rule 10 B (1)(e) for sake of ready reference is reproduced hereunder:- "10B. (1) For the purposes of sub-....
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....rred (i.e., direct cost of an output of product or services); or sales effected (i.e., amount of total receipts from sale of goods and provisions of services, less returns and allowances); or assets deployed (i.e., any tangible or intangible asset owned by the enterprise having economic value of its owner or source of wealth/income). Thus; • Sub-clause (i) envisages that the net profit margin is to be computed on any one of the base as above. • Sub-clause (ii) envisages that comparability analysis of the net profit margin realized by the enterprise is to be done from a comparable uncontrolled transaction by an unrelated enterprise which is to be computed having regard to the same base, that is, the base adopted for determining the PLI of the enterprises entering into controlled transaction. • Sub-clause (iii) refers to the net profit margin under sub-clause (ii) which is the net profit margin realized by the enterprise visà- vis the unrelated enterprise from comparable uncontrolled transaction which is computed on the same base. Further, this clause envisages that the net profit margin arising in comparable uncontrolled transaction (tha....
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....accurate adjustments can be made to eliminate the material effects of such differences." 21. From the harmonious reading of sub-clause (iii) of clause (e) of Rule 10B and sub-rule (3) of 10B, it is quite ostensible that under a comparability analysis of an international transaction with the uncontrolled transaction, reasonable and accurate adjustment is permitted to weed out any difference which materially affects the price or costs or the profit arising therefrom such transaction in the open market. Nowhere the rule suggests that the adjustment which materially affects the price or cost or profit should be made only to the uncontrolled transaction, that is, comparables and not to the 'tested party' whose transactions is being compared. This is apparently clear from the reading of sub clause (i) and (ii) which envisages that the net profit margin is to be computed and compared to in relation to or having regard to the same base, that is, of the 'tested party' or the comparables; and sub-rule (iii) provides that adjustment of net profit margin arising in comparable uncontrolled transaction, i.e., vis-à-vis the independent comparables is adjusted taking into account the dif....
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.... in the hands of the tested party may throw fruitful result. If we accept the proposition that no adjustment can be made either on the cost base or profit of the 'tested party' then there may arise a problem, that in case of the comparables such factors materially affecting the cost or profit may not be accurately available so that proper adjustment can be made in respect of all the comparables. Here in this case, it has been pointed out that in case of as many as ten comparables it was not possible to identify the correct amount of forex loss/gain from the financials/data available in the public domain. In such situations, it would be very difficult to fathom a proposition that adjustment should be made only in the case of comparables and not in the case of the tested party. Making adjustment of comparable margins with partial information would at times result into absurdity or unscientific analysis of the profit margin which can never be the intention of the law as contained in Rule 10B(1). 23. One of the contention raised by the Ld. CIT, DR before us is that, for determining the net profit margin, all operating expenses should be taken into account and once any item is appear....
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....e that forex loss is not part of the operating cost is rejected. The only bone of contention of the parties, now before us is that, whether the loss or gain on hedging transaction, i.e., loss on account of cancellation of forward contracts is something of peculiar feature in the case of the assessee which requires any adjustment in the PLI. The main contention of the Ld. Counsel before us is that, out of the total forex loss of Rs. 3.41 crores, loss on account of cancellation of forward contracts amounting to Rs. 2.22 cr. is due to abnormal factors peculiar to the case of the assessee in this financial year and, therefore, should be excluded from the operating cost while computing the PLI. In principle, we agree with the contention of the Ld. CIT, DR that hedging loss or gain arising in the normal course of business has to be generally given the same treatment as is given to the loss or gain in the underlined transactions. It is imperative to see, firstly, whether the forex gain or loss are of trading nature that is, exchange gain or loss is on a trade receivable or payable and whether or not the tested party is responsible for them, that is, the foreign currency risk is that of th....
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....ly, in that process assessee had suffered a loss of Rs. 2.22 cr. Such a loss even due to untoward incident generally would have gone into the operating cost, had it been demonstrated that it was the phenomenon across the industry or in the cases of comparable uncontrolled transactions, that is, independent comparable entities this was also the peculiar feature. If such a peculiarity is absent or its magnitude is less in the case of the comparables, then ostensibly such peculiarity or abnormality has to be treated as factors materially affecting the cost and consequently, the PLI of the tested party for which the reasonable accurate adjustment should be made to eliminate this effect, because it has to be reckoned as a difference between the international transaction and the comparable uncontrolled transactions. 25. Before us, the Ld. CIT, DR has also contended that comparability factors as contained in Rule 10B (2) also envisages risks assumed by the respective parties to the transactions and risk on account of forex fluctuation arises when a transaction is entered into with another party resulting in contractual obligations being denominated in foreign currency as compared to th....
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....71% which will work out to Rs. 78 lakhs and, therefore, only Rs. 78 lakhs should be as operating cost to make it comparable and at par with the comparables and balance should be removed as non-operating. This argument has become purely academic; hence no opinion is expressed on this point. 27. Both the parties have also referred to various decisions in support of their contentions that how the adjustment should be made either in the case of the tested party or in the case of the comparable independent parties. Both the parties have cited their own set of decisions and have also tried to distinguish the contrary decisions relied by the opposing parties. Since we have analysed the issue as per our understanding of relevant provisions of the rules and also its application on the facts of the present case, therefore, we are not inclined to deal and discuss in detail about the various judgments on which both the parties have given their submissions and counter submissions. Other submissions on this issue made by both the parties are also not dealt with because; we have already given our finding on the issue of adjustment. 28. The next main issues relates to inclusion and exclusion....
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....Drafting & Management Services: P3 LDS provides a commercial contracting and licensing services, including drafting, reviewing and revising contracts. It also provides contract management and administration services. These services are further integrated with customized online contract managed databases. P3 LDS also provides legal terms database solutions. c. Document Review & Litigation Services: P3 LDS also provides services, which include organization, review and catalogue of documents. These services involve identification of data pertinent to litigation or corporate due diligence matters, populating databases and preparation of reports regarding such data. These services also involve compilation of lay witness background reports and betting of curriculum vitae. d. Legal Research & Competitive Intelligence Services: P3 LDS conducts and analyzes research including federal, state, international case law, federal, state and municipal regulatory codes and legislative history using industry-standard databases; and also conducts multi-jurisdictional surveys i.e., 50 states survey. e. Marketing/Business Development: P3 LDS....
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....ervices which is a nature of software services to its client and cannot be treated as similar to ITES services. In support of its contention and for exclusion of this company, the Ld. Counsel relied on the following decisions:- a) Jardine Lloyd Thompson India P Ltd (ITA No. 779/Mum/2013) (Mumbai) dated 29 November 2016; b) HSBC Electronic Data Processing India Pvt. Limited (ITA No. 247 & 295/Hyd/2014 AY 2009-10 dated 18 February 2015 ; c) Excellence Data Research Pvt. Ltd v ITO (ITA No. 159/Hyd/20 14) AY 2009-10 dated 12 December 2014; d) M/s. Capital IQ Information Systems (India) Pvt. Ltd.[ITA No. 1961/Hyd/2011] AY 2009-10; e) Daksh Business Process Services Pvt. Ltd [ITA No. 2666/Del/2014], AY 2009-10, dated 5 July 2016; f) QAD India Pvt. Ltd [ITA no. 1685/Mum/2013], AY 2009- 10, dated 30 September 2016; g) Market Tools Research Pvt. Ltd. [ITA No.1811/Hyd/2012], AY 2008-09, dated 24 October 2013. 29.3 On the other hand, Ld. CIT, DR relying upon the order of the DRP submitted that DRP has already directed the TPO to consider only the relevant segment of TPO who has considered the margin of 21.3% in respect of engineering design services. The objection of t....
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.... Centre India Pvt. Ltd., ITA No. 2594/Mum/ 2014 for AY 2009-10 order dated 16.01.2015. That apart reliance was also placed on the following decisions:- a. Jardine Lloyd Thompson India P Ltd (ITA No. 779/Mum/2013) (Mumbai) dated 29 November 2016; b. Xchanging Technology Services India Pvt. Ltd (ITA 813/2015) (Delhi High Court) dated 20 October 2015; c. Nett App India Pvt Ltd [IT(TP) A No. 1633/Bang/2014], AY 2009-10, dated 11 May 2016; d. Aegis Limited [ITA No. 1213/Mum/2014], AY 2009-10, dated 27 July 2015; e, HSBC Electronic Data Processing India Pvt. Limited (ITA No. 247 & 295/Hyd/2014 AY 2009-10 dated 18 February 2015; f. Excellence Data Research Pvt. Ltd v ITO (ITA No. 159/Hyd/2014) AY 2009-10 dated 12 December 2014; g. M/s. Capital IQ Information Systems (India) Pvt. Ltd.[ITA No. 1961/Hyd/2011] AY 2009-10 dated 31 July 2014; h. Hyundai Motors India [ITA No. 255/Hyd/2014, AY 2009- 10, dated 31 July 2014; i. M/s. Avineon India Pvt Ltd. [ITA No. 1989/Hyd/2011], AY 2007-08, dated 31 October 2013; 29.6 The Ld. CIT, DR objecting to the exclusion of this company submitted that the assessee is not low end BPO service provider albeit assessee is into high ....
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.... that the assessee is rendering its ITES of legal data base and other administrative services through highly skilled and professionally qualified lawyers and hence this company cannot be reckoned as providing simply BPO services of low end. She has pointed out that for rendering ITES, skilled and professional Lawyers were engaged by the assessee company and that precludes the assessee being classified as low end service provider. As pointed out by her, in the T. P. Study Report as stated, the assessee is providing the services mostly through its own staff which are qualified lawyers in Mumbai and has also outsourced its ITES services which is in the nature of legal support services, data processing and legal data services by engaging qualified lawyers from outside. If both the comparables are providing services by using skilled manpower then definitely it has to be reckoned that both are providing high end services and functionally can be held as comparable. Thus, comparability cannot be rejected simply on the ground that assessee is mainly a BPO or low end ITES service provider. So far as the issue relating to impact on profitability on the margin involving significant merger a....
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....ia Pvt. Limited (ITA No. 247 & 295/Hyd/2014 AY 2009-10 dated 18 February 2015 vi) Maersk Global Service Centre India Pvt. Ltd. (ITA No. 2594/Mum/2014 AY 2009-10 dated 16 January 2015 vii) Excellence Data Research Pvt. Ltd v ITO (ITA No. 159/Hyd/2014) AY 2009-10 dated 12 December 2014 viii) M/s. Capital IQ Information Systems (India) Pvt. Ltd.[ITA No. 1961/Hyd/2011] AY 2009-10 dated 31 July 2014 Apart from that it was pointed out that e-Clerx Services Ltd. has outsourced substantial work to third party during the year and the outsourcing charges to the total direct cost is approximately 32%. In support, the following chart was furnished before us: Particulars Rs. (in millions) Outsourcing charges (Contract for services) 266.59 843.09 Total direct cost (outsourcing charges + employee benefit expenses) 31.59% Rate of outsourcing charges to total direct cost Further Ld. Counsel relied upon the decision of Hon'ble Delhi High Court in the case of Rampgreen Solutions Pvt. Ltd., (supra), wherein the Hon'ble High Court has directed the Assessing Officer to exclude one of the comparables on the ground that most of its work wa....
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....l Ltd. 29.11 The assessee had selected this comparable in its TP Study based on the financials for the accounting year ending 31.12.2008. The assessee had also submitted the copy of Annual Report of the company as at 31.12.2009 and results as on 31st March 2009 also. The TPO has rejected this comparable on the ground that it has reported financials for the year ending 31.12.2008, whereas the period for comparability analysis is 31.03.2009. Before us, the Ld. Counsel submitted that as per the supplementary details available, R-Systems is engaged in BPO/ITES business and it is undisputed fact that it is functionally comparable to the assessee. The assessee had also submitted the operating profit margin of R-System for the year ending 31.12.2009 which was calculated from the audited financials for the year ending 31.12.2008 and also audited accounts for the quarter ending on 31st March, 2008-09. The working of which has been given in the following manner: Particulars For the year ended For the quarter ended For the quarter ended For the year ended 31-Dec-08 31-Mar-08 31-Mar-09 31-Mar-09 (Audited) (Audited) (Audited) (Audite....
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....We have heard rival submissions and also perused the relevant finding given in the impugned orders. This comparable company has been rejected not on the ground of functionality but on the ground that it is following the financial year from January to December (i.e., calendar year). Though a comparable company following a different financial year may not be generally taken for comparability analysis, however, if financial data is available for all the quarters including January to March and it is otherwise possible to determine the value of the transaction as well as the profitability during the corresponding period, then it suffices the comparability criteria. Because, ultimately the core point in comparability analysis is to benchmark the margin of a given period of a comparable uncontrolled transaction with controlled transaction. If the financials of the corresponding period is available then it cannot be rejected simply on the ground that it has a different financial year. As brought out on record by the Ld. Counsel before us that the audited accounts of R-Systems for the year ending 31.12.2008 and for the quarter starting from 31.01.2008 to 31.03.2009 is available and once suc....
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....columns. Thus, as rightly held by the Tribunal, if from the yearly data ending 31.12.2008, the results of the quarter ending 31.03.2008 are excluded and if the results for the quarter ending 31.03.2009 are included, it is possible to obtain the data for the financial year 01.04.2008 to 31.03.2009. 30. This view is not contrary to Rule 10(B)(4) which reads as under:- "10B(4) The data to be used in analysing the comparability of an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. 31. The Rule does not exclude from consideration the data of an entity merely because its financial year is different from the financial year of the assessee. What the Rule requires is that the data to be used in analyzing the financial results of an uncontrolled transaction with an international transaction shall be the data relating to the financial year in which the international transaction has been entered into. Thus, so long as the data relating to the financial year is available, it matters not, if the financial year followed is different. In the case before us the data relating to the relevant financial y....
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....ses, which indicated that there were certain abnormal factors operating in its case. The exclusion was upheld by the DRP whereas the assessee has requested for its reinstatement before the ITAT. The Balance Sheet of Allsec can be referred to at Page 381 of the Paper Book containing the Balance Sheet of the comparable. This company is operating call centre and is predominantly operating within India. Its foreign exchange earnings during the year were 74% and with further growth taking place within India, the same has reduced to 50% in the subsequent year. As explained by the Delhi High Court in the case of Rampgreen Solutions, a call centre is in the nature of low end BPO service and is not comparable to high end services that require skilled manpower. Further, this company is also going through merger and acquisition during the relevant previous year. The same is evident from Pg 392-393 of the Paper Book. Further, the financial highlights of the company as appearing in its Balance Sheet for 2010-11 can be referred to Sr. No. V(l) of Revenue's Paper Book. It can be observed from the same that right from the year 2008 to 2011; this company is incurring only losses. Further, the r....
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.... difference in export turnover filter. This has been held so by the Hon'ble P&H High Court in the case of Mercer Consulting India Pvt. Ltd., (supra). The Ld. CIT DR has also pointed out that this company had been going through merger and acquisition and right from the year 2008 to 2011 this company has been incurring loss. The merger and acquisition undertaken by this company has impacted the profitability over a period of three years upto March, 2011. If the loss is on account of merger and acquisition in this year, then definitely we agree with the proposition of Ld. CIT, DR that this would definitely impact the PLI and consequently the comparability analysis. However, if the loss is during the normal course of business and has nothing to do with merger and acquisition in this year, therefore, such a margin even if it is a loss, has to be accepted and it would be a fit comparable for benchmarking the assessee's margin. Accordingly, only for this exercise, that is, to examine the impact of merger and acquisition in this year, we are remitting the matter back to the file of the TPO. The assessee will also provide the relevant details in support of its case. Thus, this comparabl....
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....ng considered as comparable by assessee at a later stage, we are unable to subscribe to the views of the TPO, because once the TPO has rejected most of the comparables and asked the assessee to furnish fresh comparables, then TPO is bound to consider the comparables as submitted by the assessee. Apart from that, once the separate segment of ITES services are available in public domain or made available, then such segment needs to be benchmarked with the assessee. Further, we are unable to subscribe to the view that, since this comparable company had incurred loss in this year as well as in the earlier year, the same should be excluded, because the loss making and profit is in the normal course of business and unless certain peculiar factors have not been pointed out for loss, a comparable company cannot be rejected simply on the ground that it is loss making company. Once a separate segment is available and the profitability of such a segment is determinable, then the same should be adopted for the comparability analysis. Hence, we uphold the order of the DRP for accepting the said comparable in the final list of comparables. Accordingly, the revenue's ground on this comparable is ....
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....d on FAR analysis then, we do not see any reason as to why these comparable companies should not be considered for comparability analysis. The TPO cannot preclude the assessee from proposing inclusion or exclusion of comparables even it has been brought at later stage either by assessee or by TPO himself, if all material facts for comparative analysis are made available. The paramount aim of transfer pricing mechanism is determination of ALP of a transaction and any inclusion or exclusion of comparables should be based on proper FAR analysis as provided under the law. Accordingly, we direct the TPO to examine these two comparables and assessee will provide all the necessary data for considering the same. Thus, these two comparables are set aside to the file of the TPO for proper comparability analysis and if they are found to be comparable then same should be included in the comparable list for the purpose of benchmarking the profit margin. 29.32 As regards M/s. Jindal Intellicom Pvt. Ltd, it is seen that this company too was rejected by the TPO on the ground that financial data of the company was available only up to 31.03.2008. The assessee had submitted that the business desc....