TaxTMI 
TaxTMI 
2019 (4) TMI 56
X X X X Extracts X X X X
X X X X Extracts X X X X
....ally erred in: 1.1 conducting selective fresh analysis for identifying and accepting companies functionally dissimilar to that of the appellant's business operations in the final set of companies: 1.2 rejecting companies functionally similar to that of the appellant's business operations from final set of companies; 1.3 disregarding additional comparables provided by the appellant on the basis of a fresh comparables search; 1.4 considering the single year data for the comparables i.e. data for FY 2010-11 only and disregarding multiple year data which was considered by the appellant in accordance with the provisions of Rule 10B(4) of the Income-tax Rule, 1962 ("Rules"); and 1.5 providing an adhoc risk adjustment for differential risks assumed by the appellant without following any scientific methodology. 2) The Ld AO erred in law and on facts by initiating penalty proceedings under Section 271(1)(c) of the Act. The above grounds are without prejudice to each other. 4. The Revenue in ITA No.1349/PUN/2015 has raised the following grounds of appeal:- 1. On the facts and in the circumstances of the case, the Ld Commissioner of Income-tax (Appeal) was erred in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2% and average margins of comparables worked out to 29.73%. The assessee had adopted OP/OC as its PLI and had declared margins of 11.72%. The TPO thus, made an upward adjustment of Rs. 84,40,837/-. The Assessing Officer passed final assessment order in the case of assessee, against which the assessee filed an appeal before the CIT(A). 7. The CIT(A) directed exclusion of two concerns from final list of comparables i.e. Infosys BPO Ltd. and Eclerx Services Ltd. and balance 7 concerns were held to be functionally comparable by the CIT(A). 8. The Revenue is in appeal against exclusion of the concerns, whereas the assessee is in appeal before us and has pointed out that two concerns i.e. Accentia Technologies Ltd. and Informed Technologies Ltd. need to be excluded from final set of comparables. It was also pointed out that PLI of Jeevan Softech Ltd. (segment) needs correction. The third issue which is raised by assessee is allowability of risk adjustment @ 20% following the ratio laid down by the Delhi Bench of Tribunal in the case of Sony India Pvt. Ltd. reported in 114 ITD 448. For the above said proposition of exclusion of Accentia Technologies Ltd. and Informed Technologies Lt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....al of an upward adjustment of Rs. 84,40,837/- by the TPO. The CIT(A) has directed exclusion of two concerns i.e. Infosys BPO Ltd. and Eclerx Services Ltd. The Revenue is in appeal only with regard to exclusion of Exclerx Services Ltd. The segmental details of the said concern were applied by the TPO but the CIT(A) held the said concern to be not comparable as it was KPO concern. 12. The Pune Bench of Tribunal in the case of DCIT Vs. BNY Mellon International Operations (India) (P.) Ltd. (2017) 87 taxmann.com 130 (Pune-Trib.) have held in turn relying on the ratio laid down by the Hon'ble High Court of Delhi in Rampgreen Solutions Pvt. Ltd. Vs. CIT (2015) 377 ITR 533 (Del) that Eclerx Services Ltd. being engaged in the business of KPO services, was not comparable to the assessee who was engaged in business of BPO services. Applying the said proposition to the facts of present case, we uphold the order of CIT(A) in this regard and dismiss the grounds of appeal raised by Revenue. In any case, the tax effect in appeal filed by Revenue is below the limits prescribed by CBDT and hence, appeal of Revenue is also not maintainable on this ground. 13. Now, coming to appeal of asse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....could not be included in the final set of comparables holding as under:- "13. Next, assessee had contended that Accentia Technologies Ltd. has been wrongly included by the TPO as a comparable concern. As per the assessee, the said concern was engaged in functionally different activities. It was pointed out that the said concern is engaged in providing medical transaction, billing and coding services, application development & customization (segmental data not available). Moreover, it was contended that the sales/turnover of the said concern was more than Rs. 50 crores for the year under consideration which did not meet with turnover filter applied by the assessee. On this point, it was pointed out that the assessee had selected sales/turnover filter of 1-50 crores i.e. any concerns having a turnover exceeding Rs. 50 crores were excluded. Thirdly, it was pointed out that the activities of the said concern were not comparable to the activities of the assessee. 14. The TPO has noted the aforesaid objections of the assessee in para 18.1 of his order and has rejected the same by merely noticing that 75% of the revenue/income of the said concern is from ITES and therefo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....peal before us is similar to the issue before the Tribunal and following the same parity of reasoning, we hold that Accentia Technologies Ltd. cannot be compared as comparable because of extraordinary event of acquisition and amalgamation during the year. Accordingly, we direct the TPO/Assessing Officer to exclude Accentia Technologies Ltd. from final list of comparables. 15. Now, coming to next objection of assessee is the correct margins of concern Jeevan Softech Ltd. to be applied. The said concern is functionally comparable to the assessee and has been selected by the TPO in the final list of comparables. However, the assessee is aggrieved by computation of PLI of the said concern, in turn, relying on segmental details. 16. We find that similar issue of computation of PLI of the said concern arose before the Tribunal in DCIT Vs. BNY Mellon International Operations (India) (P.) Ltd. (supra) and the Tribunal directed as under:- "14. The next plea raised by the assessee is incorrect computation of PLI of Jeevan Scientific Technology Ltd., which was earlier known as Jeevan Softech Ltd. The said concern was picked up as comparable and there is no dispute about applying marg....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nologies Ltd., (2) Cosmic Global Ltd. and (3) Informed Technologies Ltd. from the final list of comparables and to correct the margins of Jeevan Softech Ltd. and work out the average margins of comparables. It was the case of learned Authorized Representative for the assessee before us that the same would be within +/- 5% and hence no addition on account of arm's length price of international transaction with the associate enterprises is to be made in the hands of assessee." 16. Following the same parity of reasoning, we direct the Assessing Officer/ TPO to work out correct margins of said concern Jeevan Softech Ltd. and then determine average margins of comparables and apply the same." 17. The issue arising in the present appeal before us is similar to the issue before the Tribunal and following the same parity of reasoning, we direct the Assessing Officer / TPO to work out the correct PLI of said concern Jeevan Softech Ltd. and then determine the average margins of comparables in order to compute arm's length price of international transactions. 18. The last concern which needs to be excluded in the hands of assessee is Informed Technologies Ltd. 19. We find that the Tri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....echnologies Ltd. which is as under:- Particulars FY 2005-06 FY 2006-07 FY 2007-08 FY 2008-09 FY 2009-10 FY 2010-11 FY 2011-12 OP/OC -44.21% 34.71% 3.67% 22.61% 26.73% 6.97% 5.12% 25. Where comparable picked up by the TPO for the purpose of bench marking the international transaction in the hands of assessee is showing such differential profitability earned from year to year, then such a concern cannot be picked up as being functionally similar because of abnormal profitability trend. In this regard, we find that Pune Bench of Tribunal in case of Cummins Turbo Technologies Ltd., UK Vs. DDIT (Int. Tax,) (supra) had also held that Informed Technologies Ltd., because of its abnormal profitability trend, is to be excluded from the final list of comparables. Accordingly, we hold so." 20. The year under appeal before us is assessment year 2010-11 and the assessee has been showing different profitability from year to year and such a concern cannot be picked up as being functionally similar because of abnormal profitability trend. Accordingly, we direct the Assessing Officer / TPO to exclude Informed Technologies Ltd. from final list of ....